[Senate Hearing 110-864]
[From the U.S. Government Publishing Office]
S. Hrg. 110-864
UNEMPLOYMENT IN A VOLATILE ECONOMY: HOW TO SECURE FAMILIES AND BUILD
OPPORTUNITY
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
ON
EXAMINING UNEMPLOYMENT IN THE ECONOMY, FOCUSING ON WAYS TO SECURE
FAMILIES AND BUILD OPPORTUNITIES
__________
MARCH 6, 2008
__________
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EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico RICHARD BURR, North Carolina
PATTY MURRAY, Washington JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island LISA MURKOWSKI, Alaska
HILLARY RODHAM CLINTON, New York ORRIN G. HATCH, Utah
BARACK OBAMA, Illinois PAT ROBERTS, Kansas
BERNARD SANDERS (I), Vermont WAYNE ALLARD, Colorado
SHERROD BROWN, Ohio TOM COBURN, M.D., Oklahoma
J. Michael Myers, Staff Director and Chief Counsel
Ilyse Schuman, Minority Staff Director
(ii)
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C O N T E N T S
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STATEMENTS
THURSDAY, MARCH 6, 2008
Page
Kennedy, Hon. Edward M., Chairman, Committee on Health,
Education, Labor, and Pensions, opening statement.............. 1
Prepared statement........................................... 2
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming,
opening statement.............................................. 4
Alexander, Hon. Lamar, a U.S. Senator from the State of
Tennessee, statement........................................... 8
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio,
statement...................................................... 9
Smith, M. Patricia, Commissioner, New York Department of Labor,
Albany, NY..................................................... 10
Prepared statement........................................... 12
Krueger, Alan B., Professor of Economics and Public Affairs,
Princeton University, Princeton, NJ............................ 16
Prepared statement........................................... 18
Jackson, Ronica, Worker, Boston, MA.............................. 24
Prepared statement........................................... 26
Brock, Hon. William, Former Secretary of Labor and U.S. Senator,
Annapolis, MD.................................................. 27
Prepared statement........................................... 30
(iii)
UNEMPLOYMENT IN A VOLATILE ECONOMY: HOW TO SECURE FAMILIES AND BUILD
OPPORTUNITY
----------
THURSDAY, MARCH 6, 2008
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:01 a.m. in
Room SD-430, Dirksen Senate Office Building, Hon. Edward M.
Kennedy, chairman of the committee, presiding.
Present: Senators Kennedy [presiding], Brown, Enzi and
Alexander.
Opening Statement of Senator Kennedy
The Chairman. We'll come to order. We, first of all want to
thank all of our witnesses for being here this morning. We have
a very distinguished group. We're very grateful to them for
taking the time to join with us. I'll introduce them in just a
moment.
I'll submit my full statement for the record.
Our committee cares very deeply about our human resources,
our fellow human beings. One of the prime areas of concern,
obviously, is the whole issue of employment and the lack of
opportunity and the lack of jobs. And what happens to people
when they lose their jobs.
We are facing serious economic conditions that I think all
of us are familiar with. One of the very significant and
important phenomenons that's taken place in the employment
situation is the fact that we have individuals who are
unemployed for a longer period of time looking for jobs, than
any time in recent economic downturns. If you look at the
charts that we have over here you will see in 2001 we were
facing a recession.
Congress acted there with the extension of the unemployment
compensation. If you look at 2001 verses 2007 you'll find 18
percent more workers are exhausting the Federal unemployment
benefits today than at the start of the 2001 recession. Now if
you look at what the record has been of Congress.
There are seven times in recent years since 1991 where
we've extended unemployment compensation. But if you look at
the bottom three, we had President Bush in those last three,
the bottom three. All during those times when the Congress
acted, in a bipartisan way, we still had a lower number of
people looking for jobs than we do at the present time.
So Congress acted when we didn't have as significant a
problem with longer term unemployment. It's not only affecting
the individuals, but we've also seen what its impact has been
on newly discharged veterans who are collecting unemployment
benefits. We have some 23,000 with all the implications that
has.
We are concerned about this. We are facing in the Congress
a lot of different options about how we're going to deal with
either the recession or the economic slowdown. Whatever terms
you want to apply to it. But one of the aspects is unemployment
compensation. We know, finally, that the unemployment
compensation safety net has been tattered in recent times.
So today we want to discuss unemployment compensation: its
relevancy in terms of our economy, its relevancy in terms of
its stability, how we can alter and change the system. We know
some States like New York have made rather dramatic differences
by changing their systems to reach out and cover people. We
want to hear from our witnesses recommendations as to how we
should proceed or whether we should proceed.
So I will include my full statement, that goes into this is
in some greater detail, in the record. I'll recognize Senator
Enzi.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
I am pleased that all of you could join us here today. In
recent weeks, we've seen numerous warning signs that our
economy is headed in the wrong direction. Working families know
better than anyone that times are tough. They worry about
putting food on the table, heating their homes, paying their
medical bills, and paying their mortgages. Perhaps more than
anything, they're worried about their jobs.
In today's troubled economy, too many people are out of
work, and too many others go to work each morning hoping they
still have a job. The unemployment rate is rising, and experts
predict that it will keep on rising for months to come. It's
already 7.6 percent in Michigan and 6.8 percent in Mississippi.
Ohio, Alaska, and South Carolina are all over 6 percent as
well.
Workers who lose their jobs are having great difficulty
finding new work. Eighteen percent of unemployed workers--1.2
million people--have been looking for a job for more than 26
weeks but can't find one. There just aren't enough jobs to go
around.
There are now nearly two unemployed workers for every job
opening in the country. That's a far tougher job market than we
saw before the last recession, and if history is any
indication, we'll see three or even four unemployed workers for
every open job before things improve.
Unemployment doesn't just hurt workers, it devastates
families. It means months of pounding the pavement, knocking on
doors, struggling without a paycheck. It means choosing whether
to pay your heating bill or pay the mortgage. It means worrying
about how you'll pay for your son's asthma medication, or
telling your daughter you can't afford to send her back to
college.
It's not just individual families who are affected.
Unemployment hurts the country as a whole. Unemployed workers
have no money to spend. Even those who still have a job are
worried and cut back their spending. It drags the whole economy
down, and forces still more people out of work.
Families lose faith in the American dream. As the economy
falters and families fall, the very fabric of society crumbles.
We have to stop this crisis before it worsens, and that
takes strong economic leadership. First, we have to strengthen
the safety net for families struggling to find work. Our
outdated unemployment insurance system doesn't provide enough
support. More than a third of unemployed workers run out of
benefits before they find a job. Two and a half million people
ran out of benefits in fiscal year 2007--before the recession
even began. We know this number will continue to rise as the
recession deepens.
That's why I've introduced legislation to extend
unemployment benefits for all Americans, and provide extra help
for workers in high-unemployment States. Extending benefits is
an obvious measure that helps families in crisis, and it also
gives an immediate boost to the economy.
But it's not enough. Too many people are left out of the
system and don't qualify for benefits, despite their hard work.
The current unemployment insurance system hasn't kept pace
with the changing economy. Technology has changed, the
workforce is more mobile, and temporary job losses have been
replaced by long-term structural unemployment. But the rules of
eligibility for our unemployment insurance haven't changed with
the times. Federal law hasn't changed since the 1960s. In 2006,
only a third of unemployed Americans received unemployment
benefits. Workers who paid into the system for years were left
out when they needed help the most.
These holes in the safety net affect low-wage workers the
most. According to GAO, they're only half as likely to receive
such benefits as other unemployed workers, even though they're
twice as likely to lose their jobs when the economy goes south.
We need to modernize our unemployment insurance system by
encouraging States to adopt reforms that will cover more
workers, help families care for their children, and help
workers in job training programs.
The Unemployment Insurance Modernization Act serves these
important goals, and gives States the resources and flexibility
they need to revitalize their programs and serve working
families more effectively. The legislation has already passed
the House, and has substantial bipartisan support in the
Senate. We need to pass it immediately and fix our broken
system.
Finally, we need to recognize the profound shifts in our
economy. As the jobs in manufacturing and other industries
continue to disappear, job training for displaced workers will
become more critical than ever. Hard-working Americans are more
than willing to change careers--but they need help to do it.
The Administration, however, has played a shell game on job
training. In 2004, President Bush told America: ``I believe we
can double the number of workers who are going through the job
training programs.'' But his budgets have consistently
undermined this promise through drastic funding cuts. This
year, he wants to cut the total well over a billion dollars. He
even wants to eliminate the Employment Service--a longstanding
source of needed assistance and training.
The Administration would further undermine existing
programs by replacing comprehensive training services with
private accounts, requiring workers to pay for Federal training
services they now get for free, and exposing workers to useless
or even fraudulent programs.
The President also wants to eliminate programs that provide
vital services to groups with special needs, such as unemployed
youth and Native Americans, even though these proposals have
been rejected time and again by Congress. That's exactly the
wrong solution. Instead, we need to make a real commitment to
help unemployed Americans learn new skills that fit the jobs
our country needs.
We've obviously got to change direction, and in the new
global economy, it's more critical than ever for each American
worker to be able to contribute to the economy. That means
giving them the genuine support they need to get back on their
feet and back into the workforce.
So I look forward very much to hearing from our witnesses
today, and to working with my colleagues on both sides of the
aisle to build realistic new opportunities for the unemployed
and for all our people.
Opening Statement of Senator Enzi
Senator Enzi. Thank you, Mr. Chairman. Our committee, the
HELP committee, has jurisdiction over many of the subjects that
can bring Americans the greatest likelihood of economic
security. That's a good education, a good job, sufficient
retirement savings and good health. It's all under our
committee jurisdiction.
Although many of the issues which are being discussed today
are not matters that come before this committee, I'm glad we're
taking the time to talk about those that will. Now I'm reminded
that if you only have a hammer every problem appears to be a
nail. I hope that unemployment compensation doesn't become a
nail.
Security and advancement in life are most directly
accomplished by security and advancement in employment. That
can't simply be legislated. We do a disservice to all
concerned, most especially the chronic low-wage worker, if we
suggest that Federal entitlement programs and mandates are the
only answer.
In challenging economic times, such as a recession, I
believe it may be prudent for the Federal Government to enact
some measures to stimulate the economy, and carefully tailor
the degree of those measures to the degree of the downturn.
Many of those options are being discussed right now, both on
the floor and in committees of jurisdiction.
However, amid the discussion of short-term economic
stimulus we shouldn't neglect to discuss or miss the
opportunity to enact longer term solutions that are the only
source of real and lasting economic security. I don't want to
miss the opportunity to advance the best long term investment
we can make in America's future. Americans want good, stable
jobs to secure our futures.
But not all of us have access to the right tools to get us
there. It's no longer just a matter of finishing high school or
going to college. In 1950, 80 percent of the jobs people held
were categorized as unskilled.
Today just the opposite is true. Over 80 percent of the
jobs are categorized as skilled. The result is that in this
decade 40 percent of the job growth will be in jobs requiring
some post-secondary education.
If current trends continue we'll not have people with the
talents and skills we need to fill the jobs that will be
created over the next few years. By 2020 we will need 14
million more skilled workers in this country than we're
currently able to provide.
Meanwhile our job training trains to jobs that no longer
exist. I do remember that when I first came to Washington there
was a lot of talk about how welfare reform had been enacted.
How people were going to fall through the cracks and kids were
going to be affected. There were a lot of articles in the
paper. But there was never any follow up on that because it
simply didn't happen.
I remember sitting in a restaurant and hearing one lady who
had gone through some special job training and it had worked
for her. For the first time she had had a job. She was talking
to her sister and telling her that she had to get some job
training. And that the one that had the job would be willing to
watch her kids all night so that she could go to school so that
she could get a good job too.
So there's some job training that's involved in this and
some pride that goes with that. Today's job markets are seeking
those with specialized skills. But the skilled individuals who
are desperately needed in one part of the country might be in
surplus in another.
Training must be in tune with the current and future needs
of the local markets. Education and training is also no longer
an undertaking for the young. Reliable estimates are that 75
percent of today's workforce needs to be retrained just to keep
their current jobs.
There's a popular and bipartisan plan to address these
needs. For several years now, one of my priorities have been
improving and reauthorizing the Nation's job training system.
That was created by the Workforce Investment Act.
This program helps American workers get the skills they
need to better compete in the global economy and obtain secure
futures. It will start an estimated 900,000 people a year on a
better career path. The bipartisan bill that we negotiated
along with many of my colleagues here has the input of all the
stakeholders.
It will focus on training for high growth, high wage and
high demand jobs and will better connect local training to
local jobs. Otherwise the choice is to move. I would encourage
people to do that, too.
Because we're really short a lot of people in Wyoming in
some really high paying jobs, particularly in the coal fields
out there. Driving a truck is $60,000 to $80,000 a year and no
experience is needed. They do the training as long as you meet
the drug requirements.
But the needs of incumbent workers also have to be
considered. Workforce development also means knowing how to
keep them current with their escalating skill requirements and
advances in their occupation by helping low-wage workers
advance in their jobs. Entry level jobs will open up and more
opportunities will be created.
Although it's twice passed the Senate and been unanimously
approved by this committee, the bill is still waiting to go to
the floor in this Congress. WIA is now 5 years overdue for
reauthorization. I believe we all share the same goals. That's
to help American workers find and keep secure, high paying
jobs.
We know that education and training will lead to the kind
of increased wages and better jobs we all want to create for
our Nation's workers. Let's work together to get that Workforce
Investment Act reauthorization bill done so that this will be
the last Congress that we have to talk about the possibility of
training people to the right kinds of jobs. We must ensure that
workers and students of all ages will have the opportunity to
gain knowledge and skills they'll need to be successful
throughout their lives and make sure that our businesses have
the workers they need to remain competitive. WIA
reauthorization is integral to meeting that goal.
But it's not the only ingredient. We also have to upgrade
our primary and secondary education systems. Every year in the
United States, 7,000 students drop out of school.
If the high school students who dropped out of the class of
2006 had graduated instead, the Nation's economy would have
benefited from an additional $309 billion in income that they
would have earned over their lifetimes. It's an incredible
statistic. But because we couldn't reach those 7,000 people it
will cost us $309 billion in income that they don't earn. Not
to mention some of the other things that we'll have to provide
in order to pull them through life.
We simply cannot afford to lose those resources. We have to
deal with the situation head on. We can't allow students to
waste their senior year and graduate unprepared to enter
secondary, post-secondary education and the workforce focused
on skills and knowledge.
I'm really proud of a Tennessee principal, that we got to
meet, that has figured out a way to encourage kids in high
school by setting up institutes in high school. One of the
institutes is a building institute which focuses the kids that
are interested in building something on actually learning their
education through concentrating on building something. She said
that one of the delights of it was that a lot of times a kid
who comes into the program thinking I could be a really good
carpenter, says I could be a really good architect and design
the building as well as build the building.
So it increases their potential. She goes down into the
grade school and hands out prerequisites for the high school
institutes. All the kids in high school are taught the same
thing. They're just taught it with a focus on a future job.
For drop outs the future outlook is not good. Unless high
schools are able to graduate their students at a higher rate
than the 68 to 70 percent they currently do. More than 12
million students will drop out during the course of the next
decade. The result long term will be a loss to the Nation of $3
trillion and as you can imagine even more in the terms of
quality of life of those drop outs.
In addition it's important to remember the fact that a high
school diploma does not guarantee that a student has learned
the basics. Nearly half of all college students are required to
take remedial courses after graduating from high school before
they can take college level work. Each year more than 1 million
first-time, full-time, degree seeking students begin their
undergraduate careers at a 4-year college and university with
every hope and expectation of earning a bachelor's degree. Of
those students fewer than 4 in 10 will actually meet that goal
within 4 years and only 6 out of 10 in 6 years.
Among minority students remediation rates are even higher
and completion rates are even lower. To remain competitive in a
global economy and allow Americans to build the secure futures
we all desire, we can't afford to lose people because they
don't have the education and training they need to be
successful.
The United States was proud to claim 30 percent of the
world's population of college students 30 years ago. Today that
proportion has fallen to 14 percent and is continuing to fall.
Of course demographics are responsible for a lot of that shift.
India alone educates just one-third of its population. It
will have more educated people than the total population in the
United States. But we do have control over whether we continue
to let many students fall through the cracks and out of the
education training flight plan.
We need to focus on the acquisition and improvement of job
and job-related skills. In this context we should recognize
that only 68 percent of the students entering the ninth grade 4
years ago are expected to graduate this year and that for
minority students this number hovers around 50 percent. In
addition we continue to experience a drop out rate of 11
percent a year. These non-completion and drop out rates and the
poor earnings capacity that comes with them can't be fixed by
increased Federal spending.
As a former small business owner I've seen many employees
start in an entry level job and work their way up to management
and even ownership of their own small business. To get there
these individuals acquired training and skills along the way
which allowed them to secure their own and their family's
future. Not one of them got there because of a few more weeks
of unemployment compensation benefits eligibility or a few more
food stamps, although I'm sure both would have been
appreciated.
If we want to address this issue seriously and with long-
term success we have to equip our workers with the skills they
need to compete in the technology driven, global economy. We
need a system in place that can support a lifetime of
education, training and re-training for our workers. The end
result will be the attainment of skills that provide meaningful
employment opportunities and secure economic futures.
Skills and experience will lead to a lasting wage security
for American workers. I need to apologize because I'm going to
have to go to the Budget Committee where we're doing our mark
up. Senator Alexander will be doing an introduction if you
permit for Senator Brock. I'd appreciate it.
The Chairman. Fine. Well thank you very much, Senator Enzi.
I now recognize Senator Alexander for the purposes of making an
introduction of a former colleague, old friend, whom we're
delighted to have here before the committee. Then I'll
introduce the other witnesses.
Statement of Senator Alexander
Senator Alexander. Thanks, Mr. Chairman. I will limit my
remarks to that.
Bill Brock spent 25 years or so in government or as
Chairman of the Republican National Committee including service
as a U.S. Senator. But all that important work in trade, in
politics, and in Congress, I would say is no more important
than what he's been doing the last 20 years. He's become one of
our country's leading spokesmen for meeting the challenge of
having a skilled workforce and the connection of having that
skilled workforce in maintaining our standard of living.
We overlook the fact as Americans sometimes, Mr. Chairman,
how fortunate we are. We produce about 30 percent of all the
money in the world each year for about 5 percent of the people,
which is the number of people who live in this country. Most
people agree that that's because of our brain power and skill
power particularly since World War II.
So I'm here to welcome one of Tennessee's most
distinguished citizens, a former member of this body and look
forward to what he and other members of the panel have to say.
Thank you for the time.
The Chairman. Well, thank you very much, Senator Alexander.
Very nice and well deserved tribute, former Secretary of Labor,
too, so he is familiar with this.
Well, I'll introduce the other panel members. Patricia
Smith, the Commissioner of Labor for the State of New York.
She's focused on vigorously protecting workers, ensuring
employers compete on a level playing field.
Before coming to the Labor Department, Commissioner Smith
was Chief of the Labor Bureau in the State Attorney General's
Office. She also worked for a variety of legal service
organizations representing unemployment claimants, workers in
the Federal job training programs and job seekers. She's a
graduate of Trinity College in Washington and New York
University School of Law.
Alan Krueger is a professor of economics and public affairs
at Princeton. A former Chief Economist for the U.S. Department
of Labor, he is published widely on labor economics income
distribution, social and service education, terrorism, and
environmental economics. He received his bachelor's degree from
Cornell, and his Master's degree and Ph.D. in economics from
Harvard. I've quoted him frequently in the great battles on
increasing the minimum wage. He's a great authority on that
issue as well.
Ronica Jackson currently resides in Cambridge, MA. She is
the daughter of the late Ellen Jackson, who was a prominent
civil rights activist in the Boston area and a dear, dear
friend of mine. Ronica has a Bachelor's degree from the
University of Massachusetts, and has decades of work experience
in human resources, hotel management and as a corporate
auditor. She has an impressive and very important story to tell
about what it's really like out there.
I see Senator Brown is here. He's a member of the
subcommittee that is focused on workers and workers' interest.
If he wanted to say a brief word, we'd welcome it.
Opening Statement of Senator Brown
Senator Brown. Thank you, Senator Kennedy. I appreciate the
distinguished panel and all that they bring to this issue and
all they've brought to all kinds of issues in the years
foregone.
Just a couple of real quick stories I wanted to mention. In
the last year I convened about 85 roundtables around Ohio. I've
gone into about 55 counties and invited 20 or 25 people, a
cross section of communities and small town and medium-sized
cities and large cities in the State and just ask them
questions for an hour and a half.
Many issues have come out of the roundtables, but two I
particularly want to mention. About a couple of months ago I
was in Tiffin, OH, a town of about 20,000, an hour from Toledo.
Tiffin was an industrial powerhouse through most of the 20th
century.
It's the home of a company called American Standard that
makes plumbing fixtures that we've all seen in restrooms and
other places. Bain Capital came to Tiffin last October, bought
the company, then sold it to Sun Capital in early December.
Then they notified their employees that come December 22 the
plant would close with no more notice than that right before
Christmas.
Almost 200 people lost their jobs. They honored the union
contract for those that had 30 years and qualified for a
pension. But those that fell short of 30 years didn't have an
opportunity and lost much of what should have been due them.
American Standard is the story of company after company in
small town, medium-sized city and large city America. We've got
to figure out what to do about those situations. We make it too
attractive for companies to come in and for investors to come
in, make millions of dollars and take it out of the hides of
those workers. Not to mention what happens to a community of
20,000 when they lose a major plant.
A second thought that's come out of these roundtables with
some consistency is the disconnect between companies, employers
that need workers and the fact that so many people in Ohio
don't have jobs and/or are very underemployed. We know that
wages in this country for the great majority of people have
stagnated. That the middle class is anxious or worse and that
we as a nation do not seem to be doing much about it.
As the income gap grows, I heard Senator Lugar, the other
day mention, compare the 20 percent highest income, the 20
percent lowest. That ratio was 6 to 1 as recently as 20 years
ago and now it's 10 to 1. It will continue to grow and that's
why workforce investment is so important. It's why so much of
what you're going to talk about today is so important that
employment opportunities be expanded that we do something about
wages, we do something about the huge chasm between the wealthy
and the rest of society.
Some minor things that are not so minor like the WARN Act
need to be updated. That would help the people in Tiffin to
some degree, but it's obviously a lot more than that too. So,
I'm thrilled that you're having this hearing, Chairman Kennedy
and I appreciate all that the four of you on the panel do.
Thanks.
The Chairman. Patricia Smith, would you be good enough to
speak? You'll also comment about the changes in the
unemployment compensation and how you've addressed some of that
fragmentation, if you would, please?
STATEMENT OF M. PATRICIA SMITH, COMMISSIONER, NEW YORK
DEPARTMENT OF LABOR, ALBANY, NY
Ms. Smith. Good morning, Mr. Chairman and distinguished
members of the committee. On behalf of Governor Eliot Spitzer
and as New York State's Commissioner of Labor, I thank you for
the opportunity to provide New York's perspective on
unemployment in this volatile economy and its effects on
families and workforce opportunities.
These issues are critically important to workers and
businesses across the Nation. First, I want to express the
support of Governor Spitzer and myself for Senate bill 2544,
your bill, Mr. Chairman, to provide emergency-extended
unemployment compensation. Although New York is not facing as
high unemployment rates as some other States, our rates have
jumped significantly in the last year.
In New York City which is the engine of New York State's
growth, there's been a 16 percent increase in unemployment and
across the State a 12 percent increase. In New York State we
saw a 10 percent increase in the number of new UI beneficiaries
in the last 12 months. More significantly, in 2007, more than
35 percent of the beneficiaries exhausted their benefits but
had not yet found work.
I think this speaks to the comments you made, Mr. Chairman
and the chart that you showed because the percentage in New
York of the long term unemployed is considerably higher than at
the beginning of the last recession. We expect it to continue
to rise. Therefore we believe in the extension of UI benefits
during a downturn is a particularly effective economic stimulus
because the benefits are both well targeted to areas,
individuals and industries that are most at need and because
they're temporary.
It puts money into the hands of those who need assistance
the most. They're most likely to spend it immediately on basic
needs and with local businesses. Therefore the money has a
double economic stimulus.
The 20 weeks of emergency economic benefits that are
proposed in Senate bill 2544 would infuse more than $900
million directly into New York's economy in the first year.
Studies reveal and the Congressional Budget Office agrees that
each dollar which is invested in benefits to out-of-work
Americans leads to investment in their local economies well
beyond the initial cost. But Congress needs to act now.
The last time the economy reached a recessionary level,
Congress did enact additional UI benefits. But it was 4 months
after the recession was officially over. By that time there
were 3 million workers who had already exhausted their benefits
and were not entitled to these additional benefits.
This vital extension of unemployment benefits can be paid
for without additional taxes. We can tap into the existing
Federal unemployment trust fund which has a hefty $38 billion
balance.
I'd also like to commend, Senator Murray and support her
proposal for a summer youth job program as part of an economic
stimulus passage. Historically, youth have the highest
unemployment rates. I think it's clear that putting money into
youth unemployment and summer jobs, these will be high growth
dollars.
In addition to extending benefits, we urge Congress to
modernize the unemployment system by closing the gaps. Right
now an estimated 36 percent of unemployed workers actually
collect benefits. This has actually weakened the unemployment
insurance program's ability to act as an economic stabilizer
and to help low wage workers. For this reason we strongly
support Senate bill 1817 which would make an estimated half
million more low wage and part-time workers eligible for
unemployment benefits.
As you've mentioned, Mr. Chairman, in New York some of
these modernizations we've already made. They have really
expanded the reach of our unemployment system to out of work
New Yorkers and needy New Yorkers. As you know the Unemployment
Administration Appropriation is provided from employer tax
revenues collected in the Federal Unemployment Tax Act.
Despite the $38 billion balance, there's been a historic
disinvestment in Federal UI Administration funding. Since 2003
all States have been required to submit detailed justifications
supporting increases in UI Administration funding but to no
avail. In fiscal year 2008, States submitted documentation
showing a need of $2.9 billion for basic workload needs. But
the enacted appropriation was less than $2.5 billion. With an
economic downturn we expect an even greater workload and
therefore need even greater need for Unemployment Insurance
Administration funding.
The impact in New York has been devastating. Since 2003
we've lost 27 percent of our UI Administrative personnel. As I
go around the State one of the biggest complaints I hear about
is the long time it takes workers to actually access their
unemployment insurance benefits due to these decreases in
administrative funding.
Finally, there is a serious need to provide substantial
training and education services to our Nation's workforce,
particularly to the unemployed. As we face intensifying global
competition, a serious if not baffling disconnect is growing.
As we are witnessing a systematic disinvestment in workforce
training which was discussed earlier.
Adjusted for inflation we would have to spend $30 billion
today to provide the level of funding for workforce training
the Federal Government provided in 1978. Instead we provide
about $3.3 billion. The President's 2009 budget calls for an
additional $1.2 billion in cuts including the entire
elimination of the Wagner-Peyser Act Employment Services.
Since the WIA programs were enacted in 2000 New York's
funding has been cut by more than half. It's gone from over
$300 million to a projected $1.36 million in 2009. The
employment services that the President is eliminating continues
to be a vital link between the unemployed and our one-stop
centers.
At a time when the economy is facing an economic downswing
it is up to us to reverse the disturbing and current trend that
ignores the needs of the unemployed and the vital training
services we need to compete globally. We need to reinstate
funding for employment services. We need to reauthorize WIA. We
need to adequately fund workforce programs to ensure positive
outcomes for the unemployed and for those incumbent workers
that need to upgrade their skill.
Once again I thank you for the opportunity and welcome any
questions.
[The prepared statement of Ms. Smith follows:]
Prepared Statement of M. Patricia Smith
Good morning Mr. Chairman and distinguished members of the
committee. Thank you for the opportunity to speak today. On behalf of
Governor Eliot Spitzer, as New York State's Commissioner of Labor, I am
pleased to give our State's perspective on unemployment in this
volatile economy and its effects on families and workforce
opportunities.
These issues are critically important not just to our State, but to
workers and businesses throughout our country. Although New York is not
facing unemployment rates as high as some States, such as Michigan and
Mississippi, our rates have jumped significantly in the last year. For
example, New York City, which has been the growth engine in our State,
saw its unemployment rate increase 16 percent--from 4.9 percent a year
ago to 5.7 percent in January 2008. The State rate as a whole rose to
5.0 percent compared to 4.4 percent a year earlier.
Mr. Chairman, I want to immediately express the support of Governor
Spitzer and our State for Senate bill 2544, your bill to provide
emergency extended unemployment compensation; as well as for Senate
bill 1871, the Unemployment Insurance Modernization Act.
NEED FOR EXTENSION OF UNEMPLOYMENT INSURANCE BENEFITS
I would also like to note that there is growing concern and
evidence nationally that the economic climate is deteriorating and
there is an increased risk of a recession--some economists contend our
country is already in one. So we need to act now.
An extension of UI benefits during a downturn is a particularly
effective economic stimulus because the benefits are both well-
targeted--to areas and industries most affected by economic slowdowns--
and are temporary. It puts money into the hands of those who need
assistance the most and are most likely to spend it immediately on
basic essentials. Money invested in extended benefits flows immediately
to local businesses, which in turn provides a further economic boost.
Although extended UI benefits have been provided in every recession
in recent decades, the case for them is especially strong now, before
economic conditions deteriorate to that level.
As job growth sputters, it is likely that the percentage of ``long-
term unemployed'' workers who exhaust benefits (26 weeks, the maximum
number of weeks regular UI benefits are available in most States) and
continue to search for work will continue to rise. In fact, the
percentage of the long-term unemployed is considerably higher now than
it was at the start of the last recession (18.3 percent in January
2008, compared with 11.1 percent in March 2001).
In 2007, more than 35 percent of UI beneficiaries exhausted their
benefits. This year, an estimated 3 million workers will go without any
additional Federal Unemployment Insurance when their 26 weeks of
jobless benefits expire. (NELP, 2/12/08).
In New York State, we saw a 10 percent increase in the number of
new UI beneficiaries during the last 12 months. This rising number of
laid-off workers is one of the many ways we are currently feeling the
effects of a worsening economy.
Our manufacturing sector has been hardest hit, with a loss of
17,000 jobs over the last 12 months. The credit crisis that spread
throughout the country has also impacted our State with the loss of
5,400 jobs during the last year. Thousands more jobs have also been
lost as the effects of the nationwide housing slump have rippled
through many industries.
An extension of benefits will put high-velocity dollars into the
hands of families that will spend them quickly, providing an immediate
boost to consumer spending. The 20 weeks of emergency benefits proposed
in Senate bill 2544 would infuse more than $900 million directly into
New York State's economy in the first year.
Studies reveal that for each dollar in cost, an extension of
unemployment benefits generates $1.64 to $1.73 in increased activity.
So, each dollar invested in benefits to out-of-work Americans leads to
an investment in their local economies well beyond the initial cost.
The Congressional Budget Office agrees: its report on short-term
economic stimuli found that extending unemployment benefits is among
the most cost-effective, potent, yet temporary steps that Congress can
take to jump-start our economy.
In each recession since the late 1950s, Congress has provided
extended unemployment benefits. But as I stated before, although we are
presently only dealing with concerns of a possible recession, it is
critical that Congress act now.
The last time the economy reached a recessionary level, national
unemployment grew by 2.7 million from December 2000 to March 2002, yet
failed to trigger the Federal/State-extended benefit program authorized
by current law. Congress finally enacted a special program of
additional benefits--Temporary Extended Unemployment Compensation--in
March 2002, 4 months after the recession officially ended. The belated
response compromised the effect of the program, and 3 million workers
ran out of benefits before the Federal program was enacted. As a
result, the economy took longer to improve. Given the potential for a
prolonged economic decline, we urge you to provide this economic
stimulus immediately.
This vital extension of UI benefits can be paid for without
imposing new taxes, by tapping into the existing Federal unemployment
trust fund, which is now at the sizable balance of $38 billion.
I would also like to commend Senator Murray and support her
proposal to include a Summer Jobs component in the economic stimulus
package. Summer jobs funding could be used immediately this summer by
cities and counties to hire thousands of youth in a variety of jobs,
which will directly benefit their neighborhoods. Historically, youth
have among the highest unemployment rates, and we know that with youth
these will certainly be ``high velocity'' dollars.
UNEMPLOYMENT INSURANCE MODERNIZATION ACT
In addition to extending benefits, we urge Congress to close the
gaps in the UI system, which leave only an estimated 36 percent of
unemployed workers actually collecting these benefits. The decrease in
the share of unemployed workers receiving benefits, from a 50 percent
share in the 1950s, has weakened the program's ability to act as an
economic stabilizer and to help unemployed workers from all income
levels. In fact, a 2007 GAO report noted that low-wage workers are
twice as likely to be out of work as higher-wage workers, but only one-
third as likely to get benefits. The GAO found this inequity was at
least partly due to UI eligibility rules, particularly rules in many
States that prevent jobless workers from accessing needed benefits.
Again, Mr. Chairman, we support Senate bill 1871, the Unemployment
Insurance Modernization Act. Your bill, similar to the one already
passed in the House as a part of the Trade Adjustment Assistance Act
Reauthorization, would help close this gap by making an estimated half-
million more low-wage and part-time workers eligible for unemployment
benefits. We encourage you to link your bill to TAA Reauthorization, or
pursue other rapidly moving legislation.
The UI modernization proposal ties distribution of funds to various
changes in State law to broaden eligibility for unemployment insurance
benefits. This is of critical importance.
The dramatic structural change in our economy is transforming the
application of unemployment benefits from what was once a temporary
support system during a brief disruption between similar jobs, into a
financial bridge for workers facing a dramatic break from one industry
or career--often blue collar--to an entirely new industry or career.
This is especially apparent in the manufacturing industry.
The UI system is woefully inadequate to provide that financial
bridge, when so many workers need income and retraining assistance for
new careers. Unemployed individuals who may otherwise be ineligible for
assistance would benefit from UI modernization, directly affecting
single parents, females and low-wage workers, among others.
Your proposed UI Modernization bill uses incentive payments to
encourage States to update their UI systems, providing rewards to
States for: (1) removing barriers that block coverage for low-wage and
part-time workers; (2) ensuring a more family-friendly UI system; and
(3) helping dislocated workers increase their skills. It also provides
funding to States to upgrade the administration of their UI systems.
This act would give States the resources and flexibility they need
to pass important reforms. Each State would have a chance to receive a
share of the set-aside for incentive payments. To receive one-third of
its allotted funds, a State must adopt an ``alternative base period,''
allowing workers to meet eligibility requirements by counting their
most recent wages. States will receive the additional two-thirds of
their share of funds by adopting two of five reforms that benefit
workers.
While New York's law currently conforms to most of the
``modernized'' UI program elements in the draft legislation, we cannot
ignore the increased workload that has accrued to the States in
delivering unemployment insurance in a modern, seamless manner while UI
administrative appropriations have continued to decline.
need for sufficient unemployment insurance administration funding
The UI administration appropriation is provided from employer tax
revenues collected under the Federal Unemployment Tax Act (FUTA). These
Federal FUTA accounts remain high, with an estimated $38 billion
currently available to support UI program operations. Despite this
balance, there has been a historic disinvestment in Federal UI
Administration funding. Since 2003, all States have submitted detailed
justifications supporting increases in UI administration funding, to no
avail. For fiscal year 2008, States submitted documented fiscal needs
of $2.9 billion for base workload needs, while the enacted
appropriation for UI administration was only $2.45 billion--
representing a shortfall of $450 million. For fiscal year 2009, the
President proposed an increase from $2.4 billion to $2.5 billion for UI
State Administration. However, this level will not be sufficient to
address current shortfalls, or to reverse the trend of raising State
appropriations to fund Federal UI administration shortfalls.
The impact of this continued disinvestment on New York State has
been a 27 percent decline in the number of UI administration employees
since 2003. We are not alone. As a result of insufficient
appropriations, three quarters of the States, including New York, have
had to appropriate State resources to fill the Federal void. They
cannot continue to do this in the face of weak State budgets. For
instance, New York State faces a $4 billion budget gap for the next
fiscal year.
For the current Federal Year 2008, the U.S. Department of Labor has
already advised States that there is insufficient funding to reimburse
them for UI administration spending. The current shortfall is projected
to be $110 million (and this does not include the shortfalls currently
addressed with State resources). While a funding gap of $110 million
seems small in a multi-billion dollar program, this unfunded gap
translates into an estimated 400,000 average weekly payments for which
States will not receive any administrative monies. (Source: NASWA
Appropriations Letter,
2/27/08.)
Despite a legal obligation to reimburse States for costs incurred
to administer the UI system, all States were recently advised that, as
a result of the $110 million shortfall, only 32 percent (or $.32 on the
dollar) would be available to address administrative needs resulting
from the workload escalating beyond original estimates. While there is
a trigger mechanism in the appropriation bill to release additional
funds when claims exceed a certain base level, that trigger, as
calculated by the Congressional Budget Office, was set too high in
relation to the funding that was appropriated.
We urge you to immediately address the insufficient 2008
appropriation, either by the issuance of additional UI State
Administration funds, or by lowering the trigger in the appropriation
law. Congressional actions will provide much-needed, immediate fiscal
relief to States while ensuring the continuity of quality services to
our UI customers.
INADEQUATE FUNDING FOR A GLOBALLY COMPETITIVE WORKFORCE
In addition, there is a serious need to provide substantial
training and education services to our Nation's workforce--particularly
to the unemployed.
As you know, a secondary education was adequate for attaining a
good-paying job in the 20th Century, but it is simply not sufficient
today, when 67 percent of all new jobs require some form of post-
secondary training. The skills of America's workers must increase to
compete in an increasingly global marketplace if our high standard of
living is to be maintained. Unfortunately, however, our Nation is
investing a mere fraction of what others countries are spending,
particularly on part-time and adult students, as well as on current
workers.
To see how investment in an educated workforce pays off, we only
have to look ``across the pond'' to Ireland. Ireland has gone from
being one of the poorest European nations to one of the richest,
largely because of its workforce. It has paid Irish workers for up to 2
years of college tuition since 1996. I just returned from there
yesterday, and I have seen how the transformation in Ireland's
workforce, and consequently in its economy, has been nothing short of
remarkable. England has a similar postsecondary program. When we look
at China and India, we see that their investments in education and
training have transformed their economies.
As we face this intensifying global competition, a serious, if not
baffling, disconnect is growing. We are witnessing a systematic
disinvestment in workforce training.
We simply cannot continue to talk about America remaining as a
leading world economic power in the 21st Century when you contrast our
disinvestment in our workers with the extraordinary investment our key
competitors around the world are making in their workers. Again, it is
the investments in our human capital that have made this Nation a
success in the past, and it is necessary to make those investments
again.
Consider that 30 years ago, in 1978, the Federal Government spent
$9.5 billion on job training. Adjusting for inflation, we would have to
spend $30 billion today to provide the same level of funding. Instead,
national funding for the Workforce Investment Act programs is now only
$3.3 billion. The President's 2009 budget calls for yet another $1.2
billion in cuts, including the complete elimination of Wagner-Peyser
Act employment services and almost a half a billion dollars more in
cuts to WIA Title I programs.
In New York, the impact of these dwindling funds is taking a
serious toll on our ability to provide quality employment and training
services at a time when demand is increasing due to rising
unemployment.
The Workforce Investment Act and the Employment Service programs
serve as the foundation for New York's workforce development system.
Since the WIA programs were created in 2000, New York's share of
funding has been cut by more than half--from over $300 million to a
projected $136 million in fiscal year 2009. In contrast, if New York's
share of nationwide funding in 2000 had held steady and kept pace with
inflation, the State would receive almost triple this projected amount,
or approximately $381 million in 2009. We could serve or train another
122,000 workers.
Further, the President's proposal to eliminate the Employment
Service would disrupt critical job search and career counseling
services for the unemployed.
In New York, the Employment Service continues to be the critical
link between the UI customer base and the One-Stop Career Center
system. Unemployment insurance claimants represent more than 60 percent
of the One-Stop system customers. This ready talent pool provides the
system's greatest asset to employers in need of workers. While the U.S.
Department of Labor downplays the value of the Employment Service,
their own performance reports show that Employment Service programs
continue to bring the largest number of customers into the One-Stop
system. Nationally, the Employment Service has served nearly 12.4
million workers, with New York accounting for 15 percent of that total.
In addition, as I testified last July before the House Committee on
the Budget, the Re-employment Eligibility Act (REA) grant is an example
of a program that maintains a strong linkage between the Employment
Service and the Unemployment Insurance program.
Our REA grant focuses on scheduling UI customers early and often
with an employment counselor throughout their UI claims. This personal
service ensures that customers continue to meet UI eligibility and work
search requirements, and have access to the vast array of services
available through the One-Stop system.
The results of our pilot program exceeded our expectations. We
achieved a 2-week reduction in the average duration of UI benefits,
when compared to a control group. Based on an average of 3,000 annual
participants, a 2-week duration reduction at an average weekly benefit
rate of $278 would result in New York UI Trust Fund savings of
approximately $1.67 million. That's a gross return on investment of
over 250 percent.
It has been our desire to move REA to a systemic approach
throughout our 33 local areas. However, the lack of Federal support has
prevented us from implementing it statewide.
We are proud of our success with REA. However, it is important to
note that the key to the success of the REA model is built on the
relationship with the WIA One-Stop Career system. Therefore, the
success of REA is contingent upon there being sufficient re-employment
services available through the local workforce system--WIA and
Employment Services--to serve the UI population.
One way to ensure this is to reinstate funding for Employment
Services, reauthorize WIA, and adequately fund workforce programs at a
level that will ensure consistent and positive outcomes for the
unemployed and for incumbent workers who need to upgrade their skills.
It is also important to support the reauthorization of Trade Act
Assistance in the Finance Committee.
The bottom line is that the United States, and New York State, need
a world-class workforce to be successful in today's global economy, and
we cannot succeed without adequate investment.
Other countries--our global competitors--understand this dynamic
and are making workforce investments that we simply are not. The
consequences of not doing so will begin to seriously compromise
America's competitive position in the international marketplace.
At a time when our economy is facing a downward swing, it is up to
all of us to reverse the current and disturbing trend that ignores the
needs of our unemployed and slashes the vital training funds necessary
for our workers to compete globally. We need to learn from the last
time our economy faced an economic downturn, and how our delayed
response resulted in millions of workers without extended benefits. We
need to look at the success of global economies and how their
investment in workers has paid dividends in reducing unemployment and
increasing their global competitiveness.
Those in need are looking to us to act now--and I hope that the
State of New York's support of these bills and funding needs will
assist your efforts as you continue your deliberations.
One vote does make a difference. Governor Spitzer and I urge the
Senate to try again to help unemployed workers and help stimulate the
economy.
Once again, I thank you for the opportunity to provide a State
perspective on these important issues, and I welcome your questions.
The Chairman. Ok. Professor Krueger.
STATEMENT OF ALAN B. KRUEGER, PROFESSOR OF ECO-
NOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSITY, PRINCETON, NJ
Mr. Krueger. Good morning, Senator Kennedy and
distinguished members of the HELP committee. What I'd like to
do is describe some trends in unemployment then discuss some
new research I've been doing on the job search activities of
the unemployed and then briefly comment on some recommendations
for reforming UI.
As has been mentioned the labor market has clearly taken a
turn for the worst. The unemployment rate is up a half a
percentage point from March 2007 to January 2008. There has
been a long term trend towards longer spells of unemployment as
has been mentioned. I have a chart at the back of my
testimony----
The Chairman. That's 500,000 people----
Mr. Krueger. I think it's a little bit over a half a point,
more like 600,000.
The Chairman. Six-hundred thousand--I mean half a point
doesn't sound like much, but 600,000 does--is a lot. Thank you.
Mr. Krueger. I think one also has to think of that number
in context in that, as has been mentioned, the experience of
unemployment has changed. Unemployment is more concentrated and
tends to last longer. The number of people who stay unemployed
for at least 26 weeks has increased and has been increasing for
the last 40 years once you look at the stage we are in, in the
business cycle.
Of the ongoing spells of unemployment currently nearly one
in five last for more than half a year. About 35 percent of
unemployment insurance recipients are exhausting their
benefits. A poll by the Gallup Organization found that
increasingly workers say this is a bad time to find a quality
job. Even higher income workers, those making more than $75,000
a year have had a large increase in recent months in the
fashion saying this is a bad time to find a job.
The unemployed are not a very satisfied group. I did a
survey in 2006. We found that 27 percent of unemployed workers
said that they were very satisfied with their life compared to
about half of employed workers. Other studies have found that
after workers become unemployed it seems to have a scarring
effect on them even after they regain employment.
I think having safety nets are extremely important in the
dynamic economy like the United States. It enables people to
support policies like trade, like technological improvement, if
they know that they will be able to have some assistance when
they search for a new job.
I have been studying most recently data from the American
Time Use Survey which is a survey the Bureau of Labor
Statistics started collecting in 2003. The use of time by the
unemployed and I wanted to share some of these findings with
you which previously we could not look at. One of the things I
find is that on any given day 20 percent of unemployed
Americans devote some time to searching for a new job. That's
higher than in any of the other countries we were able to look
at.
When we look across countries, we don't find that
unemployment benefit generosity has much of a relationship with
the amount of time that the unemployed spends searching for
work. On the average day, if we look at unemployed workers who
look like they're eligible for unemployment 3 hours searching
for work.
Those who are not eligible for benefits, about 23 percent
search for work. Those who are expecting recall have a very low
rate of searching for work.
The last chart in my testimony looks at the amount of time
that people spend searching for work based on how long they
spent unemployed or how long they've been unemployed up until
that point. You can see that the unemployed greatly increased
the amount of time that they spent searching for work as they
approached the end of their benefit period, as they approach
the end of 26 weeks. But they continue searching at a fairly
high rate afterwards although it starts to taper down perhaps
because they become discouraged.
We could also look at what these data--what fraction of the
unemployed spent some of their day training, in education or
training. That's only about 7 percent. The unemployed spent
substantially more time searching for a new job than they do
engaged in job training or education.
So last, let me make some comments about unemployment
insurance reforms. Though before I do that I want to mention
that I think it's unfortunate that the President's budget for
2009 eliminates funding for the American Time Use Survey. This
is a critical source of information on how Americans spend
their time.
Who takes care of the children? Who's reading to children?
Who's taking care of elderly adults and so on?
So for unemployment insurance reforms, I suggest four
things in my testimony. First, the triggers that automatically
extend benefits have become beyond reach. This has happened for
a couple of reasons: one having to do with past legislation,
the other having to do with changes in the economy. The insured
unemployment rate is a fraction of the overall unemployment
rate and has been trending downward which makes it harder for
the extended benefits to automatically trigger.
I think when it comes to stabilizing the economy, setting
the triggers at a more realistic level will have a more
stabilizing effect for the economy. One of the reasons why I
should mention that extending benefits is helpful is that it
will probably lead more people to stay in the labor market
instead of going to programs like disability insurance which
can be extremely expensive. Also, once people go on disability
insurance they're very unlikely to get off of it.
I also suggest in my testimony improving the experience
rating in unemployment insurance. We've let experience rating
lapse. Experience rating is the practice of charging employers,
who have a worse record of laying off workers, a higher tax in
the future.
It's widely believed that experience rating helps to reduce
the number of layoffs. David Card and Phil Levine of Berkley
and Wellesley have a study which finds that if we fully
experienced unemployment insurance the unemployment rate would
decline by .6 of a percentage point, which again, is a
substantial number of people.
Third, I have proposed in the past extending unemployment
benefits to those that are seeking part-time work.
Last, a temporary increase in benefits. It seems to me that
at a current economic crisis which is brought on mainly by
problems in the mortgage market, housing market, where people
are having difficulty reaching, meeting the mortgage payments
which are resetting, that a temporary increase in benefits for
those who are in an initial period of unemployment could help
to forestall foreclosures on their homes.
Thank you.
[The prepared statement of Mr. Krueger follows:]
Prepared Statement of Alan B. Krueger
Good morning, Mr. Chairman and distinguished members of the Senate
Health, Education, Labor, and Pensions Committee. My name is Alan
Krueger and I hold the Bendheim professorship in economics and public
affairs at Princeton University. I appreciate the opportunity to share
my views on unemployment and unemployment insurance with you.
In the testimony below I describe some important trends and
findings regarding unemployment and job search, and then turn to
Unemployment Insurance (UI).
I. UNEMPLOYMENT
According to the Bureau of Labor Statistics' (BLS) definition,
``Persons are classified as unemployed if they do not have a job, have
actively looked for work in the prior 4 weeks, and are currently
available for work.'' \1\ The unemployment rate has been creeping up in
recent months, rising from 4.4 percent in March 2007 to 4.9 percent in
January 2008 (both seasonally adjusted). It is also worrisome that the
average duration of ongoing unemployment spells has been rising for
some time, as shown in Figure 1. In January 2001, the average duration
of unemployment for an unemployed worker was 12.7 weeks; in January
2008 it was 17.5 weeks. Nearly one in five of those currently
unemployed have been unemployed for more than 6 months.
---------------------------------------------------------------------------
\1\ Active job search requires that the activity has the potential
to result in a job offer without further action on the part of the
unemployed. Thus, activities like reading help wanted ads or taking a
course are not classified as active job search.
Data from the Gallup Poll indicate that Americans, especially those
in middle and higher income groups, are increasingly concerned that it
has become more difficult to find a quality job. This trend is
displayed in Figure 2. Workers are anxious about the job market, and
they are reining in consumption.
Economists have long debated why people are unemployed. Some argue
that unemployment is mainly a voluntary affair; people could find work
but they choose not to. Others argue that unemployment is involuntary,
that there are insufficient jobs available that match the skills of the
unemployed. Regardless of the outcome of this debate--and my view is
that the truth probably lies somewhere in between--it is clear that the
unemployed are not a happy lot. In a survey of 4,000 Americans that I
conducted together with the Gallup Organization in May-August 2006, I
found that only 27 percent of the unemployed said they were very
satisfied with their life while 46 percent of employed people said they
were very satisfied with their life. Unemployment also seems to have a
lasting effect on people's psychological well-being. A longitudinal
study of German workers, for example, found that individuals' life
satisfaction dropped in the year they became unemployed and stayed low
for at least 3 years afterwards, even after they found new
employment.\2\
---------------------------------------------------------------------------
\2\ See Andrew Clark, Yannis Georgellis and Peter Sanfey,
``Scarring: The Psychological Impact of Past Unemployment,'' Economica,
May 2001.
---------------------------------------------------------------------------
In addition to psychological scars, unemployment has serious
economic consequences for the unemployed and the broader population.
Jonathan Gruber of MIT, for example, has found that consumption of
food, a basic necessity, falls for the unemployed.\3\ He further finds
that the provision of UI benefits reduces the drop in food consumption
of the unemployed. And the very existence of unemployment implies that
we are not getting the most of our resources, which costs the economy
output and tax revenue.
---------------------------------------------------------------------------
\3\ See Jonathan Gruber, `` The Consumption Smoothing Benefits of
Unemployment Insurance,'' The American Economics Review, March 1997.
---------------------------------------------------------------------------
The last two recoveries from recessions could be described as
``jobless recoveries.'' Unemployment lingered and job growth was
painfully slow for months after the recessions officially ended.
Although no one has a crystal ball--and it is unclear how long the
current slowdown will last, or whether it will be declared a recession
by the NBER's Business Cycle Dating Committee--there are reasons to
expect unemployment to linger after the current slowdown ends. In this
environment, and in light of available research findings, I think it is
particularly appropriate to consider reforms to the UI program, both
temporary and permanent.
II. JOB SEARCH INTENSITY
To transition from unemployment into work, the unemployed must
search for a job. Economic theory suggests that the unemployed should
devote effort searching for a job up to the point that the cost of
additional effort is just offset by the expected benefit from that
extra effort.\4\ Until recently, job search has been a black box in
research on unemployment. How much time and effort do the unemployed
devote to job search? How does their search intensity vary with local
economic conditions, UI benefits, and personal characteristics? We are
now in a position to begin to answer these questions thanks to the
availability of the American Time Use Survey (ATUS). The ATUS is a
monthly survey conducted by BLS that asks selected individuals who
participated in the Current Population Survey (CPS) to report on their
activities for a randomly selected day.
---------------------------------------------------------------------------
\4\ This observation was first made by George Stigler in
``Information in the Labor Market,'' Journal of Political Economy,
Supplement, October 1962.
---------------------------------------------------------------------------
For the past several months I have been analyzing data from ATUS on
the activities of the unemployed, as part of a study with Andreas
Mueller, a visiting graduate student at Princeton University.
Specifically, we have pooled together data from all 4 years of the
ATUS, from 2003 to 2006, to assemble a sample of 1,824 unemployed
individuals.
This sample provides unique information on the activities that
unemployed Americans engage in, including job search. Job search
activities include preparing and sending out a resume, interviewing for
a job, traveling to an interview, and submitting a job application.\5\
We can also compare the time devoted to job search by unemployed
Americans to that of unemployed individuals in 13 other countries,
using time-use data originally collected by those countries' government
statistical agencies. Our results shed new light on the nature of
unemployment. Let me summarize seven of our main findings.
---------------------------------------------------------------------------
\5\ Job training and education are classified separately in ATUS
and not included in job search.
---------------------------------------------------------------------------
First, unemployed Americans devote much more time to searching for
a new job than do the unemployed in each of the other countries that we
have studied. On the average day (including weekends), 20 percent of
unemployed American workers devoted part of their day to searching for
a job. For the 13 other countries for which we have comparable data, 10
percent of the unemployed made an effort to look for work on any given
day, on average. (The 13 countries are: Austria, Belgium, Bulgaria,
Canada, Finland, France, Germany, Italy, Poland, Slovenia, Spain,
Sweden and the U.K.) Furthermore, the average unemployed American who
spent some time looking for work devoted 2 hours and 40 minutes to job
search activities, compared with 1 hour and 40 minutes in the average
of the other countries. Of the 13 countries, Canada comes closest to
the United States in terms of the amount of time the unemployed spend
searching for work.
Second, we have found little relationship between UI benefit
generosity and time spent searching for a job across countries. One
reason why the unemployed spend more time searching for work in the
United States than in other countries is that the variability in wages,
fringe benefits and working conditions across jobs is greater in the
United States than in other countries. When all jobs are alike, there
is little to be gained from devoting more effort to try to find a
better job. But when there is wide dispersion in wages and working
conditions, the payoff from additional job search is likely to be
greater. Another reason why the United States (and Canada) has high job
search intensity is that average education is relatively high in the
United States, and higher educated individuals devote more time to job
search.
Third, within the United States, those who appear eligible for UI
benefits tend to search more than those who are not eligible (because
they are new entrants, reentrants or part-time workers). On the average
weekday, 33 percent of those who appear eligible for UI and are not on
temporary layoff made an effort to search for work, and the average
amount of time spent looking for work by those who searched was 170
minutes. For those who are not eligible for benefits, 23 percent
searched for work, for an average of 156 minutes. Given that the BLS
definition of unemployment only requires active job search at sometime
in a 4-week period, these figures are notably high.
Fourth, those classified as unemployed by the BLS definition spend
considerably more time searching for work than do those who are
classified as out-of-the-labor force. Even if we compare those
currently unemployed to those who were categorized as unemployed when
last interviewed in the CPS but as out-of-the-labor force in ATUS,
those currently classified as unemployed are much more likely to search
for work on any given day. These findings suggest that the BLS
categories of unemployed and out-of-the-labor force represent
distinctly different labor market States.\6\
---------------------------------------------------------------------------
\6\ Corroborating evidence from job finding rates is in Christopher
Flinn and James Heckman, ``Are unemployment and out-of-the-labor force
behaviorally distinct states? '' Journal of Labor Economics, 1983.
---------------------------------------------------------------------------
Fifth, for the period that they are eligible for UI benefits, job
search intensity tends to rise the longer that workers are unemployed.
Figure 3 summarizes some of our findings in this regard.\7\ The
horizontal axis indicates the number of weeks that a worker has been
unemployed as of the ATUS survey. (Unfortunately, we can only identify
the duration of unemployment for those who are unemployed at least 13
weeks.) The vertical axis shows the average amount of time devoted to
searching for a job in minutes per day, counting those who spent no
time searching as zero (0). The solid line refers to those unemployed
who are eligible for UI and the dashed line to the ineligible. Search
intensity tends to rise for the eligible unemployed as benefits are
closer to running out, probably because they are desperate to find any
job offer.
---------------------------------------------------------------------------
\7\ Be aware that a statistical artifact known as ``length-based
sampling'' affects the trends in the graph. Individuals are only
included in the sample if they are unemployed. The less people search
for work, the longer they are likely to remain unemployed. Thus, the
composition of the sample changes with the duration of unemployment.
Those who have a proclivity to search very little are likely to be over
represented among the long-term unemployed, which will depress the
average search time.
Note: The sample includes weekends as well as weekdays. Time spent
---------------------------------------------------------------------------
searching for a job is measured in minutes per day.
Sixth, those on temporary layoff devote very little time to
searching for a job, just 12 minutes on the average day. Evidently,
workers who are on temporary layoff and expecting to be recalled to
their job have little to gain by searching for a new job and
consequently spend little time engaged in job searching. This finding
is not surprising and adds to the face validity of the data.
Seventh, about 7 percent of the unemployed spend some time engaged
in job training or education-related activities on the average day.
This is almost double the percentage for employed workers. As a group,
unemployed workers spend about one third more time in job search-
related activities than in training or education-related activities.
The relatively low participation in job training is not surprising
given the sharp decline in Federal funding of training programs since
the early 1980s.
This evidence provides a new window on the activities of the
unemployed. It is only possible because of the accumulation of data
from the ATUS. The ATUS can and has been used to study many other
questions as well, such as how much time is spent caring for children,
how much housework do men and women do at home, who cares for elderly
adults and how much time do they spend. Given the varied uses of the
ATUS and the fact that no other survey collects comparable information,
it is most unfortunate in my view that the President's FY 2009 Budget
eliminates funding for ATUS. The value of the information yielded by
the survey for policymakers, researchers, businesses and families
vastly outweigh its $4.3 million cost.
III. REFORMS TO UNEMPLOYMENT INSURANCE
The main goal of UI is to provide insured unemployed individuals
with cash assistance to tide them and their families over until they
can find an appropriate job. As such, the UI program helps recipients
stay out of poverty. Another role that UI serves is as an automatic
stabilizer. When the economy turns down in a region, UI benefits are
automatically paid out, which stimulates the economy.
As with all insurance programs, tradeoffs are involved. Paying
benefits to the unemployed could induce some people to stay unemployed
longer than they otherwise would.\8\ Economists have long noted that
reducing the burden of unemployment increases the opportunity cost of
work, leading some unemployed workers to delay their return to work.\9\
Such an incentive effect, however, is not a sign of failure. It simply
means that the unintended consequences must be weighed against the
desired effects of the program, and an appropriate balance struck. In
addition, recent research by Raj Chetty of the University of
California, Berkeley, argues that it is desirable from society's
perspective to provide job seekers who have inadequate savings
sufficiently generous UI benefits to enable them to stay out of work
longer and search for an appropriate job.\10\ Longer spells of
unemployment, to the extent they occur, are not necessarily undesirable
if they enable workers to find jobs that fully utilize their skills.
Thus, longer unemployment spells are not always an unintended
consequence of UI. In a downturn when good jobs are harder to find and
spells of unemployment are longer, I would also argue that the balance
of intended and unintended consequences shifts, and we should worry
more about cushioning the blow of unemployment.
---------------------------------------------------------------------------
\8\ It should also be noted that those unemployed who are not
eligible for UI have a stronger incentive to search for and accept a
job if UI benefits are more generous because, in the event that they
find a job and are subsequently laid off from it, they will qualify for
more generous benefits. For some evidence on this effect, see Phillip
Levine, ``Spillover Effects Between the Insured and Uninsured
Unemployment,'' Industrial and Labor Relations Review, October 1993,
pp. 73-86.
\9\ See Alan Krueger and Bruce Meyer, ``Labor Supply Effects of
Social Insurance,'' Handbook of Public Economics, A.J. Auerbach & M.
Feldstein (eds.), 2002, for a survey.
\10\ See Raj Chetty, ``Moral Hazard vs. Liquidity and Optimal
Unemployment Insurance,'' unpublished working paper, University of
California, Berkely, February 2008. Recognizing the competing effects
of UI benefits, Chetty provides evidence suggesting that the optimal
benefit level exceeds 50 percent of a worker's pre-layoff wage.
---------------------------------------------------------------------------
Reforms could make UI a more efficient and more effective program.
Here I highlight four reforms that I would recommend considering.
First, the automatic triggers that temporarily turn on extended
benefits without congressional action are not set at realistic levels.
The State triggers are connected to the insured unemployment rate; that
is, the fraction of covered workers who receive benefits. The insured
unemployment rate must exceed 5 percent for extended benefits to be
provided, and must be 120 percent above the rate in the corresponding
period in each of the prior 2 calendar years. Because insured
unemployment has drifted down relative to the BLS's unemployment rate
(which includes all unemployed workers, insured and ineligible), and
because the natural rate of unemployment has declined, it is very
unlikely that a State will automatically trigger extended benefits. In
practice, the automatic triggers have become irrelevant.
In March 2002 I testified before the Senate Banking Committee and
recommended reforming the automatic triggers for extended benefits. The
triggers have not been modernized. If more reasonable automatic
triggers are not put in place, I would encourage the passage of a
temporary measure to extend the maximum duration of benefits in the
current economic slowdown, especially in those areas with higher
unemployment. Extended benefits are well targeted to a population that
is very much in need of assistance, and that population is growing.
Second, the financing of UI could do more to stabilize the economy
and discourage layoffs. The Federal Government sets minimum standards
for State unemployment insurance programs and has a history of
encouraging experience rating. Experience rating is the practice of
charging a higher UI contribution rate from employers with a worse
history of laying off workers. This is a unique feature of the American
system of UI, and may in part help to account for the relatively low
unemployment in the United States compared with other economically
advanced countries.
Unfortunately, the degree of experience rating has severely lapsed.
Better experience rating could be accomplished by increasing the 5.4
percent maximum tax rate on high-layoff employers, and by requiring the
States to have at least five different rates and to spread employers
among the rates. Some States have only two rates. In addition, I would
recommend that the per employee taxable earnings cap--which range from
$7,000 to $10,000 in half of the States--be raised, which would allow
better experience rating at lower tax rates and make the financing of
the program less regressive. Raising the caps and lowering the rates
would also increase demand for less skilled workers. Improved
experience rating would discourage employers from laying off workers,
and help to internalize the externalities layoffs impose on society.
These changes could be made in a way that is revenue neutral, so the
tax on employers as a group would not change.
A study by Phillip B. Levine of Wellesley and David Card of U.C.
Berkeley estimates that the unemployment rate would decline by .6 of a
percentage point if industries were fully experience rated--that is, if
employers in an industry were required to pay the full additional costs
of unemployment benefits for layoffs in that industry.\11\
---------------------------------------------------------------------------
\11\ See David Card and Phillip B. Levine. ``Unemployment Insurance
Taxes and the Cyclical and Seasonal Properties of Unemployment.''
Journal of Public Economics, January 1994.
---------------------------------------------------------------------------
Third, unemployed workers who are otherwise eligible for UI but are
searching for a part-time job (e.g., because of family obligations) are
ineligible for benefits in most States. These workers pay into the
system, but are prevented from receiving benefits when they and their
families need them. States could be required to expand eligibility.
Workers who would be made eligible for UI benefits as a result of this
reform would be primarily single-parent, female, and low-income
workers.
Last, but not least, it seems to me that the credit crunch that the
economy is currently experiencing presents a unique situation in which
a temporary increase in the level of UI benefits may be particularly
timely. Unemployment benefits help the unemployed maintain a level of
consumption when their income drops. Benefits replace 50 percent of
lost earnings, but the replacement rate is often less than that because
benefits are capped, often at less than $400 a week. The average weekly
UI benefit as a percent of the average weekly wage of covered workers
was only 34.5 percent in the third quarter of 2007 according to Labor
Department data. Even with UI benefits, many of the unemployed are
forced to borrow to pay their bills. Borrowing is difficult in the
current credit crisis. In addition, many adjustable rate mortgages are
resetting, requiring higher monthly payments. It seems to me that even
the short-term unemployed will face pressure meeting mortgage payments.
A temporary increase in UI benefits can help to forestall mortgage
foreclosures for a vulnerable population. Reforming UI more generally,
as well as temporarily boosting benefits and extending benefits, would
help stabilize the economy and dampen the economic slowdown.
Thank you for your attention and I am happy to answer any questions
you might have.
The Chairman. That's good. Ms. Jackson, we welcome you. We
thank you very much.
STATEMENT OF RONICA JACKSON, WORKER, BOSTON, MA.
Ms. Jackson. Yes, good morning. Sorry.
The Chairman. We want you to just relax and feel right at
home. You're among friends.
Ms. Jackson. Ok. Thank you. I'm going to have to refer to
my notes because I'm not typically a public speaker, but the
words that I'm speaking nonetheless are very sincere in
affecting people like me and others in America. I hope my words
can be heard.
Mr. Chairman and members of the committee, my name is
Ronica Jackson. I truly thank you for the opportunity to
testify about why extending unemployment benefits will help me
and many Americans in truly dire straits. I was born in Boston
and live in Cambridge, MA right now. I grew up in a family that
valued education and maintained a very strong work ethic.
My late mother, Dr. Ellen Swepson Jackson was a civil
rights leader in Boston. I can still hear my mother's strong
voice, telling me with much emphasis and conviction, you must
get your education. At the age of 16 I graduated from high
school and went on to the University of Massachusetts where I
received a Bachelor's Degree of Psychology. I worked full-time
while attending the University.
I have always worked: first as a group leader for the
Children of the New England Home for Little Wanderers, then 5
years in social services with at-risk youth, 5 years in health
care as a human resource generalist and practice manager and 15
years in hospitality management. I have worked as a general
manager, a trainer, an auditor, and a human resource manager.
Everywhere I have worked I have been appreciated, promoted and
earned great recommendations when I moved onto new
opportunities. That's not to say that I, we all have problems
here and there in our careers.
In the fall of 2003, after working on the Cape as a general
manager for 3 years, I relocated back to Boston to help care
for my mother. I worked for a year as a manager of a clinical
practice in a major Boston hospital. As a result my mother's
health continued to fail. I mean, I'm sorry, my mother's health
continued to fail.
I stopped working knowing that a person with my experience,
references and skills would not have trouble getting another
job. Unfortunately, my mother passed in 2005. I returned to a
world that really has changed and where jobs are very, very
scarce.
I became a temp and a contract employee. This past fall I
started a temp job and became ill and I was in the hospital for
6 weeks. Once I was discharged from the hospital I then applied
for another temp job with the same agency as they were unable
to obviously hold that particular position for me for that
length of time.
But even temp jobs and contract jobs seem to have
disappeared. Finally I was told by the temp agency to apply for
unemployment. Since that time I have done everything that I can
think of to find work.
I have networked with friends, past associates, former
employers. My resume is on every Internet site that makes
sense. I call and check in almost on a daily basis with all the
agencies. Now I no longer can afford the Internet access at
home so I go to the library to search for jobs.
Even when employers post jobs they seem sometimes not to
fill them. They either pull them, they sit on them or postpone
them. As you can imagine this has been very frustrating and at
times infuriating.
Recently a recruiter informed me that there was a position
that had been on hold for almost a year, but the employer was
now ready to go forward and hire someone. I interviewed well
and the Department Head ended the interview asking me if I
could start the job that following Monday at 9 a.m. I said I
could. I waited for the formal offer through the temp agency
which was the protocol and that never came. As far as I know
the position was never filled.
I have taken and will take any viable job. I have purposely
played down and been asked to play down my skills and
experiences on my resume to try to secure entry level temp jobs
and that's to no avail actually. Despite my best efforts, help
from my friends and family, I am in a very, very bleak
financial position.
I've had to ask friends and family for money. They have
been incredibly understanding and helpful when possible. But
there's no denying that this is a very, very embarrassing
position.
My unemployment insurance ended in the second week in
September. I'm sorry, the second week of February. My rent has
been paid only through the end of this month.
In fact, my landlord took me to court to evict me. I have
lived there for 10 years and have been 1 or 2 weeks late with
my rent several times over the last year. My landlord has
always liked me as a tenant and, but he has bills to pay as
well. It takes 5 weekly unemployment checks to accumulate
enough money for me to pay my monthly rent.
My other bills including utilities have not been paid. I
have even been disconnected or shut off notices have been sent
to me. Now if I can't pay my April's rent I could very, very
well be homeless as of the first of April. This is very real.
Sometimes I look back at my life and I'm astounded at the
breadth and richness of my life as well as my personal
accomplishments and the accomplishments and the sacrifices and
hard work of my parents and family members. I shake my head in
disbelief and it brings me to tears to think that or see the
insurmountable and impossible situation that I, and many
Americans are in. I have worked all my life and never imagined
that I could be in this situation.
I have come here to Washington to testify before you with
$4 dollars to my name and that's the truth. I, like so many
Americans that are now out of work have always worked, always
paid my taxes and never dreamed that I could ever be dependent
on an unemployment insurance program.
Seriously, please consider and do whatever you can to
extend unemployment benefits quickly so that we have a chance
of finding work and surviving these very, very hard times.
Thank you.
[The prepared statement of Ms. Jackson follows:]
Prepared Statement of Ronica Jackson
Mr. Chairman and members of the committee. My name is Ronica
Jackson and I want to thank you for the opportunity to testify about
why extending unemployment benefits will help me and many Americans in
similar dire straights.
My name is Ronica Jackson and I was born in Boston and presently
live in Cambridge, MA. I grew up in a family that valued education, and
maintained a strong work ethic. My late mother, Dr. Ellen Swepson
Jackson, was a civil rights leader in Boston. I can still hear my
mother's strong voice telling me with much emphasis and conviction
``you must get your education.''
At the age of 16 I graduated from high school and went on to the
University of Massachusetts where I received a Bachelor's Degree in
Psychology. I worked full-time while attending the University full-
time.
I have always worked--first as a group leader for children at the
New England Home for Little Wanderers, then 5 years in social services
with at-risk youth, 5 years in health care as a Human Resource
Generalist and practice manager, and 15 years in hospitality
management. I have worked as a general manager, trainer, auditor, and
human resources manager. Everywhere I have worked, I have been
appreciated, promoted and earned great recommendations when I moved on
to new opportunities.
In the fall of 2003 I relocated back to Boston to help care for my
mother. I worked for a year as a manager of a clinical practice in a
Boston hospital. As my mother's health continued to fail, I stopped
working, knowing that a person with my experience, references and
skills I would never have trouble getting a good job. Unfortunately, in
2005, my mother passed. I returned to a world that seemed to have
changed, where jobs were scarce.
I became a temp and contract employee. This past fall I started a
temp job, became ill, and was in the hospital for 6 weeks. Once I was
discharged from the hospital, I then applied for other temp jobs with
the same agency and others. But even temp jobs and contract jobs seemed
to have disappeared. Finally, I was told by the agency to apply for
unemployment.
Since that time, I have done everything I can think of to find
work. I have networked through friends, past associates and former
employers. My resume is on every Internet site that made sense. I call
and check in with the agencies almost daily. Now, I no longer can
afford Internet access at home so I go to library to search for jobs.
Even when employers post jobs they seem to not be filling them.
They either pull them, sit on them, or postpone them.
As you can imagine this has been frustrating and at times
infuriating. Recently a recruiter informed me that a position had been
on hold for almost a year but the employer was now ready to go forward
and hire someone. The interview went well and ended with the department
head asking me if I could start the following Monday at 9 a.m. I waited
for a formal offer through the agency but the employer never followed
through with the position and the position was never filled. I have
taken and will take any viable job. I have purposely played down my
skills and experience to secure temp jobs.
Despite my best efforts, help from friends and family, I am in a
very bleak financial position. I have had to ask friends and family for
money and they have been incredibly understanding and helpful when
possible. But there is no denying that this is very embarrassing to be
in this position.
My unemployment insurance ended the second week of February and my
rent is paid only through the end of this month. In fact, my landlord
took me to court to evict me. I have lived there for 10 years and have
been 1 or 2 weeks late with my rent several times over the last year.
My landlord has always liked me as a tenant but he has bills to pay
too. It takes 5 weekly Unemployment Insurance checks to accumulate just
enough for my monthly rent, given the weekly unemployment rate I was
at. My other bills, including utilities, have not been paid, and have
either been disconnected or shut-off notices have been sent to me.
Now if I can't pay April rent, I could very well be homeless as of
April first. Sometimes I look back at my life and am astounded by the
breadth and the richness of my life as well as my personal
accomplishments and the accomplishments, sacrifices, and hard work of
my parents and family.
Then, I shake my head in disbelief; it often brings me to tears
that I am in what feels like an insurmountable, impossible situation. I
have worked all my life and never imagined I would be in a situation
like this.
I have come here to Washington to testify before you with $4 to my
name.
On behalf of so many Americans who share my story, who through no
fault of their own are dependent on unemployment insurance, I ask that
you extend unemployment so we have a chance of finding work and
surviving these hard times.
The Chairman. Well thank you very much. Ronica, that's very
powerful, a powerful testimony. I know it's not easy to give.
It's always difficult to talk personally about, you know, the
challenges of one's life. But you've made a very powerful
presentation here.
Ms. Jackson. Thank you.
The Chairman. We value it. And we thank you very much for
it.
Ms. Jackson. Thank you.
The Chairman. Senator Brock, be glad to hear from you.
STATEMENT OF HON. WILLIAM BROCK, FORMER SECRETARY OF LABOR AND
U.S. SENATOR, ANNAPOLIS, MD
Senator Brock. I'm honored to be back, Mr. Chairman. I have
learned much from a number of the members of the committee over
the years including the Chairman and my friend from Tennessee.
I thank you very much for the introduction.
I have to begin by admitting that I was very moved by Mrs.
Jackson. I can't imagine what it's like to be in that
situation. I just can't. I'm not sure many of us could. But I
treasured listening to you and I commend you. I wish you well.
God bless.
Ms. Jackson. Thank you very much.
Senator Brock. If I may I'm going to draw back from the
urgency of individual situations, the urgency of unemployment
as it may be affecting different States and ask if I can just
spend a few minutes. If I may I'll just submit my testimony for
the record. But I'd like to talk about what I think we have not
done in this country in the last 25 or 30 years.
Next month we're celebrating the anniversary of a very
powerful report called A Nation at Risk. In which the
distinguished people on that commission came to the conclusion
that if a foreign nation had done to our children what we were
doing, we would consider it an act of war. Not too long after
that I testified before this committee, your committee,
Chairman, as Secretary of Labor and talked about the work that
we were doing on Workforce 2000. A couple of years after that I
co-chaired the first Skills Commission in which we discussed,
again, the urgent need to do a better job of education and
training in this country.
Over the next decade we've had countless studies talking
about the urgency of change. In the first Skills Commission our
worry was the low-skill base of this country, not people with
education and real skills. We were worried about international
competition affecting people at the low end.
Well, that was before the Internet. The Internet has
changed the world because you now can hire somebody and you
don't have to move the body. If you can--if your work is
routine, it can be digitized. If it can be digitized, it can be
automated. If it can automated, you can source that work
anywhere in the world.
So what we've got now and this is particularly true in the
last decade, is a coalescent, global labor market at all skill
levels. What's happened is that the rest of the world has
decided they want what we've got. My friend from Tennessee
noted the incredible fact that we're producing much of the
world's goods and services with 5 percent of its people.
We've done it because we've been unduly blessed with a free
society, a vibrant free enterprise system and an educated
workforce. For most of the last century, we had by far the
highest percentage of high school graduates in our workforce of
any country in the world. We also had an incredible advantage
in that we were taking advantage of our most important asset,
our women. They didn't have choices, so they taught or they
were nurses. That was about it.
We had the best and the brightest in our schools. We could
afford to treat them like dirt and not pay them very much
because that was their choice. They had no other.
It was a fabulous thing when opportunities opened up for
women in this country. But the effect of it is that they did
have choices all of a sudden and they took them.
In the last 10, 15, 20 years we've been recruiting our
teachers from the bottom 30 percent of the people who go to
college, the bottom 30 percent. The question is: why is it that
after all of these studies--commissions, Workforce 2000, Nation
at Risk--why is it that we keep doing the same thing expecting
different results?
One of the things that really just blew me away, is that at
the Brookings Institute, the Brown Center, a report on American
education looked at how well American students are learning.
They talked about the fact that our reading skills were not
improving. Math looked like they were doing a little bit
better. They looked more precisely at the math test that we
were giving of the NAEP, the National Assessment of Education
Progress.
Do you know what they found out? They found out that the
eighth grade math questions asked on the NAEP were measuring
what teachers were teaching or are supposed to be teaching in
the third grade. So we were saying it's an eighth grade test
and we were measuring what they were supposed to be taught in
the third grade. We're kidding ourselves.
We have been trying. We've increased spending on real
dollars, per child, 240 percent with virtually no change in
results. Nation after nation has now passed us in the
percentage of high school graduates in the workforce. The only
thing we're exceeding the world in is the percentage of drop
outs.
We have the highest percentage of drop outs of any major
industrial country in the world, 32 percent of our kids. One
million children drop out of school every year. A large number
of those drop out by the tenth grade, not seniors or juniors,
but tenth grade.
More importantly, the ones that graduate, their quality is
mediocre. In the math and science studies that were done
internationally, the TIMMS study, we beat one country, one
country in eighth grade math, Cyprus. And we keep doing the
same thing.
If we're going to have a vibrant economy we've got to have
the highest level of education and training in the world, if
we're going to be globally competitive. If we're going to
source our workers here where they live, instead of in some
other country. If we're going to deal with the unemployment
that comes from automation and that's 9 out of 10 jobs by the
way. Most of it's automation and digitization, not
international competition.
We've got to give our workers and our students the best
education and training in the world. There can be no higher
priority for this Nation than the transformation of American
education and training. It is a different world.
So if you look at the most recent proposals that have been
made. You can sort of summarize them pretty quickly. Millions
of children are coming into our schools unprepared to learn.
They're coming out of impoverished communities and
impoverished homes where there's virtually no stimulation, no
reading material. Too often the parents don't speak English, if
there are both parents there. We expect them to keep up with
the other 15 to 20 kids in that class and learn, and they
don't. By third or fourth grade they've dropped out
emotionally.
The bottom one-third of our students go to college. The
bottom one-third take educational Phys Ed as a major. Why? It's
the easiest course in school? If you like kids, not a bad
career. But that's not the best and the brightest. If we're
going to upgrade our schools we've got to begin by recruiting
our teachers from the top one-third. That means we've got to
pay them and we've got to treat them differently, much better.
Most of the countries in the world have their kids college
ready by the age of 16. What's wrong with our kids? Are they
less? No. We're just not giving the tools by age 16.
So, first step in educational terms is that we've got to
take well intended bills like No Child Left Behind and be sure
that they're not a barrier to those States that want to do a
better job. They can be, unless there's some changes in that
rule, in that law.
Second, most of the people who are going to be working in
the year 2020 are already in the workforce. What are we doing
about that? Why not have a GI bill for workers that says that
if we want our kids to be college ready by age 16, let's give
our workers the ability to access education so that they can
have that same opportunity.
Thirty-million adults do not have a high school credential
in this country. Twenty percent of all adults and one-third of
them are foreign born. If we had a GI bill for or the
equivalent for them we could have them ready for college
without remediation.
I'm not suggesting what I'm talking about is going to
answer Mrs. Jackson's problem. What I am saying is that if we
don't do something about preparing our workers for the training
and the education with the training education that they've got
to have to be competitive in a global economy but there's going
to be a lot more people like Mrs. Jackson, who are not able to
find jobs because this economy is going to be stressed. We're
going to constantly put pressure on the wages of middle income
Americans because we're competing on the basis of wages rather
than education and training.
The last point I'd like to make is that we've got to change
the way we think about education and training. Give people the
different tools that they've got to have to compete in a global
economy. I saw, Mr. Chairman, a speech you made back in the
primaries 6 or 8 weeks ago. You were talking about in this
case, the election. You quoted a young President of 45 or 46
years ago who said, ``The world is changing. The old ways will
not do.''
I think, Mr. Chairman, that in this committee and those of
your colleagues we really do need to back off from trying to
just--we do need to address the urgent needs of those who are
pressed at the moment. But we need to take this opportunity to
back up and take a look at the entire employment and training
system of this country. If somebody's out of work they don't
care whether it's caused by international competition or
automation or bad management.
We need to think about what we do to give them the tools to
be personally productive in a new and a better way. The old
world is changing. The old ways will not do. They're not
adequate for the present systems in this country. We really do
need to look at them in a very different way. I thank you for
the chance to be with you today.
[The prepared statement of Senator Brock follows:]
Prepared Statement of Hon. William E. Brock III
Some of America's most thoughtful leaders published a report
entitled A Nation at Risk 25 years ago. In that evaluation, they stated
that if a foreign nation had done to our children in our schools what
we have done, we would consider it an act of war. Less than a decade
later, I had the privilege of serving on the first Commission on the
Skills of the American Workforce. The Commission's report, America's
Choice: High Skills or Low Wages!, echoed those who had written A
Nation at Risk. That report stated that the jobs of Americans with low
skills were threatened by low-skilled workers in poor countries who
were willing to work for much less. That turned out to be true. But
now, with the advent of China and India and other countries, very large
numbers of highly educated people are joining the global workforce
willing to work for half or less than Americans, while at the same time
they are available to employers worldwide at the click of a mouse.
In 2004, the Brookings Institution published the Brown Center
Report on American Education, which explored the question of how well
American students were learning. After first noting in an earlier study
that reading skills had not improved, the study then turned to
mathematics and noted that math performance was improving slightly.
However, in a stunning and stinging critique, they analyzed a sample of
NAEP (National Assessment of Education Progress) items and discovered
that the mathematics required to solve many of the problems was
extraordinarily easy. The report stated that, ``most of the arithmetic
one would need to know how to solve the average item on the eighth
grade NAEP is taught by the end of third grade.'' In other words, we
told our kids that their scores were improving, when in fact we were
testing eighth grade students on what they were taught in the third
grade.
I am sick of the big lie. I am sick of a system, which leads 300
million Americans to believe that we continue to give our children a
world-class education. We do not.
The truth is that we continue to do the same things in our
classrooms and expect different results. It is not as if we were not
trying. Over the past 30 years almost every one of those years has seen
us, as a people, devote more of our resources to the education of our
children. In terms of constant dollar expenditures per pupil, between
1971 and 2002, they have grown from $3,400 per pupil to $9,000 per
pupil. This means that the cost per pupil over this period has risen by
240 percent, after correcting for inflation, at the same time that the
scores of our children on the fourth grade NAEP literacy assessment
have been virtually flat (although our performance on math is better).
The problem is we keep getting very small gains at an ever-higher cost.
More importantly, and this is what is being ignored today, the rest of
the world has decided that they want what we have and they are
determined to get it by providing their kids the best education in the
world.
For most of the 20th century, the United States led the world in
the percent of working age adults who had completed high school. That
lead is being overtaken by nation after nation, some of them developing
countries. In just a few decades, the United States share of the global
college-educated workforce has fallen from 30 percent to 14 percent,
even as the numbers of Americans entering college has increased. But
worse still, the United States leads the developed world in the
proportion of students who drop out of school.
Equally, if not more importantly, the quality of those who do
graduate is, in international terms, mediocre. In a series of
international comparisons of math and science performance that began in
the 1960s, U.S. students scored in the lower half of the distribution.
The 1995 results of the Third International Mathematics and Science
Study (TIMMS) placed U.S. students far down in the world rankings.
Among all the industrialized nations in the world, we were next to
last! We beat only one country, Cyprus. But student performance is not
the only issue. The International Adult Literacy Survey (IALS),
measuring the literacy of our workers compared to the literacy of
workers in other countries with which we compete, characterizes the
literacy levels of American workers compared to the levels of the
workers in the other countries as ``mediocre.''
Here is a portrait of a failing system: for every 100 ninth
graders, 68 graduate on time; of those, 40 enroll directly in college;
of those, 27 are still enrolled the following year; of those, 18 earn
an associates degree within 3 years or a B.A. within 6 years. Eighty-
two don't make it!
When I was asked to address this committee it was my hope that we
might take this opportunity to look not just at our current
circumstance as a people, but to look more broadly at the economic and
educational challenges we face. The timing is good. If nothing else,
this might be a particularly good moment to reflect on our Nation's
progress in human development over the course of the last 25 years.
Within 2 years after A Nation at Risk was published, I appeared
before this distinguished committee in my capacity as our Secretary of
Labor, and I remember to this moment the intensity of interest each and
every member of this committee had in the subject of workforce
development. That meant much to me.
In 1990 I was privileged to chair what is known as the Skills
Commission. Our report was titled, America's Choice: High Skills or Low
Wages! In the report, we expressed deep concern that the United States
was going to face a very real problem from international competition,
and that the problem would be of primary effect among our low-skilled
workers. I underestimated the challenge. Now the world's supply of
highly skilled and relatively low-paid workers is rapidly increasing.
Because of the Internet, those employees are available to the world's
employers without moving. Thus, a coalescing global labor market is now
beginning to push wages down at all skill levels, and the people who do
routine work, are those most at risk, because that is the easiest work
to automate or send offshore. Let me try to emphasize one point very
clearly: for every job that is going offshore, 10 are being automated.
In 2006, I joined a number of very distinguished and thoughtful
individuals to take another look at these problems, and we published
one more of these seemingly endless studies. Our report was titled,
Tough Choices or Tough Times. Let me take a moment to sketch out our
central concern.
First, as I said, global employers have their choice of the world's
workers and it is a fact that the world's supply of highly skilled,
relatively low-paid workers is rapidly increasing. If, as I noted
earlier, those employees are available to any firm without moving
because of the Internet, it's fair to ask, why should employers take
our workers? The truth is that they won't unless we can match and
exceed their skill levels. But, we are not going to compete in a highly
technologically networked global economy with the kind of numbers I
mentioned earlier.
In a nutshell, our kids and our workers are going to have to be
much better educated, matching the top nations' performances in
language, math and science. They have to be very differently educated.
There are major changes needed in standards, assessments, curriculum
and pedagogy.
Let me be very specific. We've had it too easy. Much of the last
century, because we were taking advantage of American women, giving
them virtually no choice other than to teach, we got the very best and
the brightest to teach our kids and they were wonderful. We ate
everybody's lunch. Then things changed. Women now have choices, and
that is a wonderful, fantastic thing, not just for them, but for all of
us.
Here's the challenge. We've got to get the best and the brightest
among our college students today to consider teaching. We must recruit
new teachers from the top one-third of entering college students, and
that means we must pay them as professionals. Today we call our
teachers professionals and treat them like raw recruits.
We can spend a lot of time on how to do that and how important it
is. What I want is to back off and ask you a more fundamental question.
Why is it that a quarter of a century after A Nation at Risk told
us that we were in peril as a people and as a country if we did not
dramatically change our ways and give our kids and our workers the best
education and training in the world, why is it then after that report
and the countless studies from some of our best minds in this entire
Nation, that we keep doing the same things and expecting different
results? Why is it that we think we're supposed to look at these
problems as Republicans or Democrats and liberals or conservatives,
instead of as Americans? Why is it that we refuse to tell the American
people the truth about what we are doing or not doing for our kids? Why
do we keep kidding ourselves?
Last year, the Educational Testing Service (ETS) published a report
entitled America's Perfect Storm--Three Forces Changing our Nation's
Future. The three forces they describe are divergent skill
distributions, the changing economy, and demographic trends. They note
that the United States now ranks 16th out of 21 OECD countries with
respect to high school graduation rates. Between 1984 and 2004 reading
scores among 13- and 17-year-olds remained flat, and the achievement
gaps were large and relatively stable. The report adds that
manufacturing as a share of total employment had fallen from 33 percent
in 1950 to just over 10 percent today. It noted further that college
labor market clusters, including professional, management, technical
and high-level sales, were expected to generate 46 percent of all job
growths in the next 10 years. And, that given these present trends over
the next 25 years or so, as better-educated individuals leave the
workforce, they will be replaced by those who, on average, have lower
levels of education and skill. Over the same period, nearly half of the
projected job growth will be concentrated in occupations associated
with higher education and skill levels. This means that tens of
millions more of our students and adults will be less able to qualify
for higher paying jobs. Is anyone paying attention?
Are they really ready to work? That's the question asked by the
Conference Board, Corporate Voices for Working Families, The
Partnership for 21st Century Skills, and the Society for Human Resource
Management. These four outstanding organizations did an in-depth survey
last year of business, HR, and other senior executives. I want to read
you the first sentence of the executive summary, and I quote, ``the
future U.S. workforce is here--and it is woefully ill-prepared for the
demands of today's and tomorrow's workplace.'' Let me be specific.
Eighty percent of the employer respondents rate new job applicants with
a high school diploma as deficient in written communications. Fifty-
five percent report high school graduate applicants as deficient in
math, and both skills are rated as very important for successful job
performance.
There can be no higher priority for this Nation than the positive
and effective transformation of American education and training, in
other words, the human development of our people.
Certainly from the publication of A Nation at Risk in 1983, I have
felt that America's primary challenge lay in the critical need to
better prepare our youth for a rapidly changing world. When I led the
U.S. Department of Labor, we published Workforce 2000 calling for major
educational changes. In subsequent years, I led three commissions, each
of which called, with increasing urgency, for dramatic improvements in
our education and training systems.
Today I co-lead a fourth: the New Commission on the Skills of the
American Workforce. Our report, Tough Choices or Tough Times, suggests
that the great majority of U.S. schools as presently led, financed, and
composed, are simply incapable of preparing our youth to meet the
demands of a knowledge-based, technologically networked, truly
competitive global economy. We make the case, factually and clearly,
that many countries have already passed us, and that many other nations
are rapidly gaining on us in the quality of their graduates. Unless
soon reversed, this situation will inevitably lead to a steady decline
in the U.S. standard of living. The simple fact is that the Internet--a
word none of us had even heard the last time I appeared before this
committee--the Internet has changed the way we communicate, the way we
compete, the way we work. Here is the problem our employees, our
employers, and our educators have.
Any routine task can be automated, and/or digitized and/or
outsourced, and thus the world of work in this day and time
increasingly rewards innovation, creativity, and problem solving
skills. It requires an ability to source and evaluate the worth of
information, work with others, and understand and communicate with
those from other cultures. These skills will be compensated well, the
firms such individuals work within will prosper, and the Nation which
has an abundance of individuals and firms with these assets will
prosper competitively and economically.
This is, in truth, a different world. Have we changed the way we
prepare our students and ourselves for that world? No. Rather we keep
doing the same things, perhaps even more of those same things, and
expect different results. As the New Skills Commission notes, the
problem with our present reform efforts is the absence of an over-
arching reform, because the present system simply does not work--as a
system. The gaps are across the board:
(1) Children come to school, in the millions, unprepared to learn.
Simply throwing them into elementary school without addressing this
fact will inevitably lead to frustration, a sense of inadequacy, and a
fear of education. Many hit a wall by the third grade, and drop out
emotionally, if not physically. Early childhood cognitive development
for--at a minimum--economically disadvantaged kids and minority kids,
if not all children (I believe the latter), is essential.
(2) The new skills mentioned above require a far different
pedagogical approach. This will take a rethinking of what knowledge and
skills are taught and how they are measured in our schools. Other
nations that outperform us on international tests of student
performance already set high standards and use high quality exam
systems that incorporate the kinds of knowledge and skills necessary to
succeed in the 21st century economy. We need to look carefully at these
instructional systems and ask ourselves why we are not using similar
high quality systems.
(3) The bottom one-third of entering college students takes
education as a major. The reasons are legion, but the result is a
steady decline in the quality of those entering the profession. To make
matters worse, they are then treated as anything but ``professionals''
and paid truly substandard compensation. It is no wonder that half
leave in the first 5 years--and those who do are more often than not
the best. It is not logical to ask teachers to teach skills they have
not themselves been taught. Teacher preparation in the United States is
a disgrace.
(4) The way we organize most school districts leads to a stifling,
top-down, bureaucratic, expensive, and non-productive result.
Innovation, individual IEPs for all students, creative classroom
techniques/approaches, entrepreneurial principals should be the norm,
not the exception. They are not.
(5) If we were to prepare our students to leave school when ready
to go to community college or technical college without the need for
remediation, we could give them new and exciting choices--before they
are bored to death by classes which, to them, have no relevance. The
operative phrase above is ``without remediation.'' States that are able
to do this could save an enormous amount of money--money which could go
a long way to pay for some of the changes mentioned in 1 through 4
above.
(6) All the above changes will require that our Federal statutes be
modified to address those States ready, willing, and able to move on
these ideas. The No Child Left Behind law was a serious effort on
behalf of Congress and the President to give new emphasis and support
to reform efforts across America. Those good intentions must not result
in barriers to innovate and make fundamental changes in our State
education systems.
(7) Mr. Chairman, while these K-12 reforms are urgent, they would
not directly affect the skills, productivity, and earnings of the year
2020 workforce. Unless we boost the competitiveness of the active adult
workforce now, we may lose too much ground to the rest of the world
before the full effects of K-12 reforms take hold.
The U.S. labor force in the year 2020 will include 165 million
people, 100 million of whom are out of school and at work today. Two-
thirds of these workers will remain part of the active workforce at
least through the next decade as well. So what do we know about these
workers?
We know that about 30 million adults do not have a high school
credential--about 20 percent of all adults and one-third of the
foreign-born. Their access to further education and skill development
is blocked without this gateway credential. We need a new Federal
commitment to adult education: All members of the workforce 16-year-old
and older will have access to a free education up to the new high
school standard--ready for college without remediation.
But that is not enough. The U.S. labor market is very turbulent.
More than 4 million jobs are gained and 4 million lost every month in
this country. Knowledge becomes outmoded and new technologies demand
higher skills and new competencies. How are workers to ensure that
their knowledge and skills remain current and up to date?
In this environment, it is increasingly critical that workers
across the country are able to get the training they need to quickly
move to new jobs, often in new industries requiring different knowledge
and skills. I encourage you to support the creation of Personal
Competitiveness Accounts that will enable Americans to get the
continuing education and training they need throughout their working
lives. By creating a tax-protected account at birth that parents,
grandparents, aunts and uncles can contribute to and then later,
employers and the employee--along with government for low-wage
workers--can add too, adults would have the capital they need to pay
for education and training as work requirements change. I think of this
as a new GI bill for our times.
Soon we will need to re-examine our complex of employment,
unemployment, training, and trade adjustment laws and programs, to
cover all workers who suffer permanent job loss whether from trade,
technological change, or domestic competition so our experienced,
tenured workforce can have real opportunities for retraining and skill
upgrading. If we want America's workers to be agile and to support our
full engagement in the global economy, we must substantially upgrade
our adjustment assistance and training support for them--commensurate
with the large potential gains from trade that America expects.
Senators, I urge you to think hard about providing support to
States who are committed to making the tough choices outlined above to
revamp their education systems. From investing in early childhood
education for low-income children, to professionalizing teaching, to
holding school leaders accountable for increased student performance
while at the same time freeing them to organize their schools to do
just that, to providing early college options to high school students
ready for college without remediation, to providing those most in need
with the comprehensive help they need to meet new standards. These are
the kinds of changes that our States must make for this country to
continue to prosper.
A few weeks ago, the Chairman of this committee reminded me of the
words of a very young President more than 45 years ago. This is what he
said, The world is changing--the old ways will not do.'' Those words
are just as true today.
The Chairman. Well, thank you very much, Senator Brock for
bringing us down that old pathway. I remember very well the
Nation at Risk. It was Ernie Boyer.
Senator Brock. Right.
The Chairman. He was one of the great, thoughtful
architects of that report. I still remember it, I guess, a
couple parts.
I'll just take a minute of time. I had a good briefing the
other day from Andreas Schleicher, one of the leaders in the
OECD, the European system that we're looking at for comparative
education systems. It was really quite interesting.
We're looking at the impact. You could look at all kinds of
flow lines in terms of our public school system and there's
some very ominous kinds of trend lines. But what he was
pointing out is that many of the OECD countries that have as
many immigrants as us are doing better at educating their
children.
What they do is an evaluation of the child when they come
into the country and find out what additional resources are
necessary to bring those children up to speed. They spend
significantly more than they spend on other children in order
to ensure they have what they need to catch up on and equip
them for language, cultural and educational development. They
said it's extraordinary in terms of comparison with the United
States, because they save money on services later in life.
They don't get the kind of high school drop out rates that
we have. They're performing better on international
assessments. They basically find out it takes around 7 years to
have them at a similar, kind of level of performance as native-
born children.
This is all happening at a time when we're trying to do
things too often on the cheap in this country and failing to
recognize the overall, overarching theme that it's going to
take an investment to succeed.
Senator Brock. But the money would come back to us.
The Chairman. It would come back.
Senator Brock. Absolutely.
The Chairman. We need to have the new thinking on these
issues and that's certainly something that they are trying. Let
alone what they do in terms of training programs, you know. The
Europeans have the funding for various training programs.
Not that they do everything right, but nonetheless there
are some things that we can listen to from others and learn
from them.
Senator Brock. May I just----
The Chairman. Yes.
Senator Brock [continuing]. Add one point. The new
commission on Skills in the American Workforce funded by Gates,
Pugh, Lumina and others did 2\1/2\ years of studying the best
practices of the best countries around the world, our best
competitors. They came with a report that said if we would do
some of the things that you're talking about, if we would
actually assess the needs of the individual child, the
cognitive development, early childhood development of a child,
opens the door for the system to work on that child as well as
the system. You save so much money.
What we're doing today is spending money on remediation on
correcting the failures that we didn't do right the first time.
Do it right the first time. We think we can save $60 billion a
year by early childhood, by recruiting better teachers, by
having a graduation facility by 16. That's a lot of money that
could be plowed into so much better recruitment and
compensation of teachers, early childhood programs, things like
that.
The Chairman. Right.
Senator Brock. You can really pay for this. You have to do
something different though. The way we're doing it--is by keep
doing the same thing and expecting different results.
The Chairman. Jack Shonkoff, who wrote that marvelous book,
Neurons to Neighborhoods.
Senator Brock. Right.
The Chairman. He felt that we need to focus much more on
what happens in terms of early childhood development, makes
that case very strongly.
Senator Brock. Right.
The Chairman. Well, we have a number of aspects to our
economic challenges. One of them is, as we have heard in the
earlier panel, is that we're finding millions of people who are
facing terms of unemployment through no fault of their own.
When I first went to the Senate if you worked at the Four
Rivers Shipyard, down in Quincy, your grandfather worked there.
Your father worked there. You worked there. You, out of high
school, you still had 3 or 4 weeks off in the summer. You still
went down to the Cape. You had a terrific life, a wonderful
community and you hoped for better for your children and you
knew they were going to do better.
Now you have nine different jobs over the course of your
lifetime and are moving constantly. It's a whole dramatic
alteration and change. This is taking place across the country.
The question is how is this Nation going to treat its people.
One of the factors we're going to have to address is people
who are going to be, because of the change in technology and
opportunity, left behind. Unless we invest in them, in
continuing education and life-long training, as far as I'm
concerned, you're going to have a lot of very serious kinds of
economic disruptions that are going to fall, I think, on people
unfairly.
So the situation we're facing is serious. We're going to
have some figures--the new job numbers--out tomorrow. I don't
know what they're going to be, or whether you have some idea of
where they're going to go. But we're facing the immediate kinds
of circumstances and we have to try to deal with the very short
term. Obviously this issue on the unemployment insurance has
enormous implications, not only as a life line to these
individuals, but also in terms of the stimulation of the
economy.
We're going to recess for just a few minutes while I vote
and then I'm coming back.
But I'm interested, Ms. Smith, you're talking about the
gaps in the unemployment benefits. One gap, as I understand it,
is that there's a 6-month gap or so in terms of the payroll
information and that goes back to the times where we had paper
kinds of collections necessary. Therefore we find out, with the
way that the market is working, a number of people that are
working hard are being left out for that reason.
It's always interesting to me that these workers have paid
into the fund. The fund is in surplus. It was designed to be
available for people who have paid into the fund to be able to
get something back from it. Now that they've paid in, they
can't get it back. They need it. They're in desperate
circumstances. But it's fragmented.
Could you just outline quickly what the three or four major
issues are. We've included them in our legislation. But I think
it's important, as someone who's a practitioner, to get your
perspective. Tell us which are the ones that are most dramatic
and what you did in New York. And what the implications are.
Ms. Smith. Well one of the ones that we're talking about is
what you're talking about. Right now the unemployment insurance
system--usually you look at the first four or the last five
quarters. So what happens is you don't capture your last
quarter of wages.
What we've done in New York is that that can exclude a lot
of workers, especially low-income workers. So what we've done
is we have now an alternative system where if you don't qualify
under the normal system there's an alternative way to calculate
your wages. What we found is that we have far more low-wage
workers or workers who work, have been working in the last few
months but were working sporadically able to collect
unemployment insurance system. We call that the alternative
minimum base period. We think that that's important for
expanding the unemployment insurance system.
One of the other things that we've done in New York that I
think is very important is that we've tried to make it more
``family friendly,'' so that for instance, if you have to quit
your job because of domestic violence you now will qualify for
unemployment insurance where in most States you wouldn't
qualify. If you leave your job to follow your spouse, again we
have a new world here where we have families where both spouses
are working and that wasn't true traditionally. That that would
be good cause.
So that there are individuals that, you know, if you are
quitting your job, you're leaving your job for family reasons,
that you would qualify for unemployment insurance. We think
that that is another very important one, the alternative
minimum one.
The last one that I'd like to touch on is part-time
workers. Because what happens is that in most States if you're
not looking for full-time work then you won't qualify for
unemployment insurance. In New York if you're looking for part-
time work, you will qualify for unemployment insurance.
The benefits might not be as great as if you were looking
for full-time work. But again what we've done is try to bridge
that gap. The gap I talked about earlier.
Why is it that only 36 percent of unemployed people are
actually collecting unemployment insurance, are eligible for
unemployment insurance? Those are some of the main reasons why
we have tried to bridge those gaps in New York. I think we've
been pretty successful in expanding the base, the numbers of
people who are actually able to collect the benefits.
The Chairman. Professor Krueger, we had a hearing in the
Joint Economic Committee recently where we listened to both Mr.
Bernanke and Larry Summers, and others talking about the
Goldman Sachs report that said even if we're going to get a
handle on the mortgage crisis--even if we're able to flatten
out this kind of, whatever word you want to use, slow down,
recession--that unemployment is still going to go up for next
year. They estimated that it's going to go up to 6.5 percent,
Goldman Sachs said.
I don't know whether you agree with that, but the point
being that even if we begin to get a handle on the economy,
which I'm not sure that we have, that we're going to be facing
an increasing pressure on unemployment. The problem we're
hearing about today is going to be around for a while. That's
my sense.
But I'm going to recess. But I'd like you to address that
when we come back. Whether you think the unemployment, looking
down from an economist's point of view, is going to come on
down. How you think just about how we're dealing with the
problem. If you could talk just briefly about the three or four
things you think might be the most useful in dealing with that.
We're going to recess and then I'll be right back. And
we'll commence. I want to thank our witnesses.
[Recessed.]
The Chairman. We'll come back to order. Professor Krueger.
Mr. Krueger. What do I think about the Goldman Sachs
estimate that the unemployment rate could reach 6.5 percent?
I'm too smart to give a precise estimate, but it seems
plausible. It does seem plausible to me.
Regardless of the precise numbers, I would say the pattern
has been after the economy has had a recession for job growth
to linger afterwards. For unemployment to stay painfully high
for a longer period then it used to when the economy turned
around. I don't think it would be any different this time,
which is why I think it is particularly important to address
issues of the safety net now.
So you asked in terms of policy what can be done given the
economic slow down and the problems in the labor market. I
would say that this turndown has really struck me as quite
different. There's been a sea change in the way that economists
are thinking about it. So what I had been taught, what I teach
my students is that the Federal Reserve Board should handle
short-term downturns. Congress is not well suited for fiscal
policy and to stimulate the economy.
I think that view has gone out the window in this downturn.
It's really striking to see Martin Feldstein, Larry Summers
argue that it's necessary to stimulate the economy given that
when they were my teachers that was not the view that they
expressed. I think what makes this situation different is the
tools that the Federal Reserve Board has are limited given the
financial crisis and given the fear that has taken over in
credit markets.
So, what can be done? Well, first obviously the Congress
has already passed this stimulus package. It's not the package
I would have designed. It's not clear to me why so much
emphasis was put on business investment at a time when there's
a problem with lending. I don't think the demand for credit is
the problem. I think it's more the markets not functioning
normally.
But anyway the stimulus package passed. I think that the
tax rebates will stimulate the economy in the second half of
2008. I think the risk the Fed is going to face is going to be
heating up inflation as well. My former colleague, Ben Bernanke
I think is in a difficult, very difficult position.
I would suggest trying to address the lending crisis more
directly. I understand that Senator Dodd has a bill to try to
fund or to purchase, to set up an entity that would purchase
loans, mortgages and refinance them because that market doesn't
seem to be functioning properly. I think that's something worth
a close look at.
I would also mention something a little bit longer term
which is infrastructure. The construction industry is going to,
I think, suffer in this downturn. A lot of real estate projects
are coming to a halt. This Nation, as you know, faces a
tremendous problem with infrastructure, not just the bridge in
Minneapolis, but all throughout the country.
So it would seem to me that this is a good time to focus on
restoring the infrastructure. I think those kinds of
investments could also have longer term effects for the
economy. And put a sector which tends to have less-skilled
people and high unemployment back to work.
The problem with the infrastructure side is that it takes a
bit of--it takes some time to get the projects up and running.
But given that I, as I mentioned, think that the jobless
recovery when we come to the recovery stage will linger, it
seems to me that that's worth considering as well.
The Chairman. Could you comment as well about the fact that
there are an inadequate number of jobs? As I understand it
there are about 84,000 vacant jobs even in using as an example,
my State of Massachusetts, but approximately 160,000 people are
unemployed. We've got 24 applicants for every job training slot
that's opened. We heard earlier about the Administration
cutting back on their job training which makes no sense.
But if you're going to have more people and less jobs that
are available out there, what does this mean to people like Ms.
Jackson? I mean, what are we facing on that? Has that been the
case in these past recessions, or not?
Mr. Krueger. Well I think one thing that makes this
turndown, it probably is a recession, but I wouldn't----
The Chairman. Or slow down, whatever.
Mr. Krueger. Slow down. I usually wait until the NBR calls
it a recession. But in this undoubtedly, slow down, I think
what makes it a bit different is the job growth was sluggish
even in the recovery. If you compare the recovery in the 2000s
to the job growth in the 90s, the 90s were much stronger job
growth.
Some of that I think is--and also I would add, Senator, if
you look at the private sector. The private sector has been
especially sluggish in terms of job growth. It's been a State,
local and Federal Government growth in the 2000s. I think that
that adds to the problem of insufficient jobs available for
people like Ms. Jackson and others.
The Chairman. Ms. Jackson, your story is so compelling. You
worked hard. You got through school at an early age. You worked
hard through college got the training, had a wonderful variety
of different employments and now, sort of the roof caves in.
Do you find that there are other people that you run into
with similar kinds of life experience? People that have had
some training, have some skills?
Ms. Jackson. Most definitely.
The Chairman. And are faced with the fact that there's just
not the opportunity there, the jobs, I mean. Do you find that
this is common? We've been seeing it obviously in recent times.
Generally it's been the people that are the unskilled in the
past and we've found different ways of dealing with it.
But now we're finding people that have the skills and are
being put in the position where jobs are increasingly difficult
to find. Do you find that when you're talking to your friends
and your neighbors that this is something that's more common
than you might have even thought of before?
Ms. Jackson. Most definitely. I have friends that, actually
some of them who've relocated to different parts of the country
that were among mid- to senior-level management and in
hospitality or in some of the other places that I've worked at
and they simply cannot find comparable jobs. I have a friend
that moved from New Jersey, worked in New York, and moved to
Florida. And sells Triple A, yeah, sells Triple A right now in
one of the strip malls. She has a very strong background in
rooms operation management in hotels. So it's not isolated.
One of my neighbors is very good with software and has done
some contract jobs with MIT. But that's all he can get is
contract jobs or temp jobs. They often last a month or
sometimes 6 months. But then they stop. He's really in, you
know, a very bad position financially because it's hard to find
a job that's going to be stable and pay at a rate that's going
to be helpful.
The Chairman. Well, I think you make this case in an
extraordinary, compelling way that reminds us of our
responsibility. I'd like to ask Dr. Krueger, really, finally, I
think Ms. Jackson's answered it, but some people say it's too
early to extend the unemployment benefits. As I said earlier,
the long-term unemployment is already higher than when we first
extended unemployment benefits in past recessions.
So could you talk just about the sense of urgency about it?
What we ought to do and in what period of time?
We made the judgment to do the mortgage help and the
unemployment has been sort of deferred. But I'm interested in
hearing from you about your own sense of urgency about this
type of help and assistance, then maybe Commissioner Smith can
make a comment on it.
Mr. Krueger. Well, I think the extended benefits are
particularly well targeted. I think they're targeted to people
who are in tremendous financial stress. I think that that's a
great feature of the program. So you could think about the
amount of distress that you relieve per dollar compared to the
average dollar in the rest of the stimulus package. I think you
get much, much more value for the dollar from extended
benefits.
My own personal view would be, it would be better that the
Senate doesn't have to convene to decide when and to trigger
extended benefits and that it would be better if the
unemployment insurance legislation automatically extended. You
know if the insured rate were lowered that's necessary for the
extended benefits to turn on or if it was more targeted to
geographic areas. So as was mentioned earlier, there are some
parts of the country which are not in as much difficulty as
others.
So my own preference would be to pass a bill that makes
extended benefits easier to trigger on automatically. I think
that that would help to stabilize the economy. It would help to
bring the economy to bounce back in those sections of the
country which are having difficulty.
If that's not feasible then I do think there's some urgency
to extend benefits at this point. As I mentioned earlier, I
think that the job growth is going to be sluggish for the next
year, 2 years. I also think that given the trend that we've
seen towards longer term unemployment is certainly not healthy
for the economy.
A lot of people have been moving onto disability insurance
I think because they're having difficulty in the labor market.
Then they just stay there which is very expensive. So to the
extent that we could keep them attached to the labor force, I
think extended benefits would help to do that. I think that's
another consideration.
The Chairman. Let me ask you what's your sense about the
accuracy of these figures? You know, there's a lot of sense
that they're not nearly as accurate as they were in the past
and not really reflecting, you know, where people are at in
terms of the employment. They have given up and you know, in
terms of looking for jobs and all the rest doesn't really
reflect what is happening out there in the real world.
Mr. Krueger. That's an excellent question. I think the
figures are accurate but they have to be kept in context. So I
think the unemployment rate does effectively describe the
proportion of the workforce that's actively seeking work and
without work.
What it misses is those who've given up. That's a separate
category and particularly for prime-aged men. I wrote a piece 3
or 4 years ago in the New York Times which I called the Kramer
Effect. You know, middle-aged men who are out of the labor
force who are not seeking employment. Many of them are going on
disability insurance.
So I think that, and this gets to your question, I think
the job market is weaker than the unemployment rate might
indicate when you compare it to historical levels because the
nature of the job market has changed. I think that's also
connected to the increase in unemployment spells. The fact that
unemployment is more concentrated in a smaller group and also
members of that group, that demographic group, are also leaving
the labor force and that's certainly a loss to the economy.
The Chairman. Commissioner Smith, the sense of urgency on
this, I want to be able to quote you.
Ms. Smith. My sense is that last year in New York State, 37
percent of the unemployment insurance beneficiaries exhausted
their benefits and hadn't found new unemployment. It's 35
percent. That's now at ``the beginning'' of the economic
downturn or whatever you want to call it. That's 167,000 people
in New York State.
Interestingly enough when I looked at the statistics, those
individuals were over represented in--and this goes to support
Professor Krueger's point--in the white male category and the
over 40 category. So I think that's what you're seeing,
especially in New York State, where you're seeing a lot of
continuing downturn in the manufacturing sector. You're finding
individuals for whom unemployment is not just a temporary
bridge from one job to a similar job.
But when they become unemployed they're actually going to
have to find a job in a totally new industry or totally new
occupation. For that reason you're going to have longer spells
of unemployment. Now if that's happening without an economic
downturn, with an economic downturn with even more sluggish job
growth which we're seeing in New York, more sluggish job
growth. You're going to have even longer and longer spells of
unemployment I think.
So I think that now and not later is the time. Now we have
people who are exhausting their benefits and still looking for
work so now's the time to try to fix that problem.
The Chairman. Let me ask you, Professor about the
infrastructure bank--your reaction to it. It would open up, you
know, the job opportunities surrounding the infrastructure. But
also you could use it in terms of rebuilding schools. Now we've
got $40 billion worth of needs to maintain our schools and
build new schools in the country.
Have you looked at the concept? Is it something that we
ought to be moving ahead on?
Mr. Krueger. Well I have to confess I haven't looked at the
details of that.
The Chairman. Ok.
Mr. Krueger. But I would say at this point of the economy
it strikes me as a particularly good time to consider
infrastructure projects. The construction industry, which did
hold up pretty well in the recession in the early 2000s is not
holding up well now. So I think, you know, from the
government's perspective this is a good time to invest in
infrastructure, certainly.
The Chairman. There's a lot that's out there on line. Just
in terms of schools for example, there's enormous need for
rehabilitation of schools, let alone rebuilding. That's
something that we can take a look at.
Well this has been very helpful. I have every intention of
pressing along my good friends and colleagues on the Finance
Committee on this issue. We know that the Finance committee has
an interest in unemployment compensation, but we do too. Our
committee is the committee that looks at the worker and what's
happening to workers. We have talked with Senator Baucus about
it and he's very keen.
So we want to try and move ahead. I think the kind of
urgency that Ms. Jackson has given to us in human terms tells
the stories very, very clearly about what's really happening
out there. So we are very grateful to the witnesses. We've got
your testimony and we might have a few select questions.
The Chairman. But I think we've made a good record over the
course of the morning. We're very grateful to all of you. The
committee will stand in recess.
[Whereupon, at 11:46 a.m. the hearing was adjourned.]